North American energy companies active in international plays increasingly find themselves forced to defend themselves in court against allegations of human-rights violations filed by foreign citizens. This is even though most of the plaintiffs have never set foot in the U.S. and their claims are based on conduct that occurred far from U.S. soil.

The lawsuits are being filed under the Alien Tort Statute, a law that originated with the first U.S. Judiciary Act in 1789 but is now finding greater popularity in U.S. courts. Foreign plaintiffs in these cases must show that defendant companies, alone or in conjunction with foreign governments, committed egregious violations of human rights such as torture, rape, forced servitude or genocide. Certainly such conduct would never be condoned nor considered by reputable companies doing business abroad, but many foreign plaintiffs are getting U.S. trial dates because their targets were forced to hire and supply host-government troops as part of E&P concession contracts.

Most targeted companies choose to settle these lawsuits rather than face the public-relations risk of going to trial.

How can foreigners sue a U.S. company in the first place? The Alien Tort Statute was buried in legislation used by the first U.S. Congress to create the federal judicial system. The statute represents an enigmatic clause giving foreigners the right to sue in federal court for a violation of "the law of nations." When the statute was drafted, the "law of nations" primarily covered the rights and obligations of states vis-à-vis each other, with individual conduct being ignored for the most part.

Some individual conduct, however, had international ramifications. Piracy, for example, was seen as disruptive to the global economy, so pirates were legally considered "the enemy of all mankind." Under the law of nations, any state that captured a pirate need not worry about jurisdictional niceties or extradition, allowing the capturing state to lawfully "give him a fair trial and hang him in the morning." Other individual conduct of international concern included offenses against ambassadors and violations of safe conduct.

The Alien Tort Statute lay dormant for almost 200 years until 1978, when a claim filed by a South American dissident changed the course of international human-rights litigation. In that case, the son of an outspoken critic of Paraguay's fascist dictator was kidnapped and tortured to death. When one of the son's torturers moved to New York, he was sued under the Alien Tort Statute, and eventually ordered to pay more than $10 million. The floodgates were opened.

People from all over the world began filing lawsuits in American courtrooms, including Japanese women forced into prostitution during World War II, Israeli victims of the Palestinian Liberation Organization, Vietnamese who suffered abuse at the hands of American soldiers, even descendants of Holocaust victims.



Unocal, Talisman

The energy industry was spared as a target of such suits until a California-based Unocal Corp. partnered with the Myanmar government to develop and transport natural gas. In 1992, Unocal (now owned by Chevron) and a subsidiary acquired an interest in a gas exploration project off the coast of Myanmar (Burma), a nation with a long, well-known history of human-rights abuses. Partners in the project included the national oil company, Myanmar Oil & Gas Enterprise, and France-based Total SA. A major part of the project involved building a pipeline through the interior of Myanmar to Thailand. The Myanmar military agreed to provide security for the project, while helping construct helipads and clearing roads along the proposed pipeline route.

Unocal allegedly knew that the Myanmar military would conscript villagers to work on the project and rape or kill any who resisted (and even some who did not). A lawsuit soon followed. In California in September 1996, Burmese villagers named Unocal, Total, the Myanmar military and the Myanmar state-owned oil company as defendants. The claims against Total were thrown out because the company had no U.S. connections, as were the claims against the Myanmar military and the Myanmar state-owned oil company based on sovereign-immunity law.

Unocal, the lone remaining defendant, argued that it had not committed the human-rights abuses and shouldn't be held liable. An appellate court disagreed, ruling that Unocal could be civilly liable for "aiding and abetting" the human-rights violations by working with the Myanmar military.

In a similar lawsuit, citizens of the Sudan sued Calgary-based Talisman Energy in New York, claiming the company collaborated with the Sudanese government in its policy of ethnically cleansing civilian populations to facilitate oil exploration. Although Talisman eventually got the lawsuit dismissed, the company spent five years in litigation and hundreds of thousands of dollars in legal fees while defending investor questions about its reputation. (It has since exited Sudan, selling these oil assets to other E&P companies.)

Energy companies often operate in volatile areas of the world governed by repressive or corrupt regimes. Royal Dutch Shell's recent experiences in Nigeria clearly show oil exploration can be dangerous. Rebellious factions-whether based on religious, tribal, ethnic or political partisanship-have a tendency to target oil and gas facilities because of their symbolic and monetary value. Energy companies often are portrayed in developing countries as "exploiters" of natural resources that collaborate with corrupt local regimes, while failing to plough enough of their profits back into the local economy.

As anyone with overseas experience knows, to get the concessions to drill for oil and gas, energy companies must enter contracts with national oil companies, whether run by regimes rebels are fighting or not. Energy companies must be very careful in how they deal with host governments to avoid becoming entangled in human-rights violations.



Simple rules

Although there are no guarantees that an energy company can avoid lawsuits like those filed against Unocal and Talisman, some initiatives can significantly curtail the possibility of legal action while assisting in the defense of companies that are sued. Following are a few simple rules that all energy companies operating overseas should consider when trying to protect themselves against Alien Tort suits.

Be familiar with the local situation. Employ someone from the area whose reputation is impeccable and learn everything possible about the indigenous people, how the government works in the area where facilities will be located, and which non-governmental organizations are active in the area. Establish a dialog with these stakeholders from the beginning.

If drilling has not yet begun or if the pipeline has not yet been laid, talk to all the landowners within three kilometers of the facility. Publish flyers explaining what you plan to do and why you believe it will be of benefit to them. Talk to all the NGOs about their particular concerns, including environmental issues, torture, forced labor, adequate wages and child labor. Hold "town meetings" where these concerns are discussed. Expect some disagreement from certain quarters, but be ready to listen.

Commit to drill at a location that is least offensive to the majority of people living in the immediate area. If the pipeline is going to traverse sacred ground or a highly sensitive wildlife habitat, consider re-routing its course. Listen; be transparent; be flexible where possible. The more homework done, and the more acceptance or consensus built from the beginning, the fewer outbreaks of violence in the long run.

If violence is already present where you plan to invest, and drilling has already begun, building consensus obviously becomes more difficult. You can commission a security study to apprise you of the risks, but security studies won't insulate you from being sued for aiding and abetting torture, forced servitude or war crimes by the host government.

In the Talisman case, government troops already were using company helicopters to transfer supplies and personnel to combat zones, and the project operator had lost control of certain supplies and equipment. If such a scenario exists, either reconsider your investment or put aside money to defend a possible lawsuit.

Hire security personnel not from the host country's military. Although many host governments will expect you to use their police or military to guard the facility, try to avoid this. Most cases of energy-company liability under the Alien Tort Statute involve company representatives working in tandem with military forces where drilling occurs. While governments have primary responsibility for maintaining law and order, and police or military personnel may be stationed at or near the drilling location, you also should hire private security personnel under your instruction and control.

Private security generally should provide defensive services to protect the facility and should not act as host-country law enforcement. Do everything you can to make sure the personnel you hire do not have a history of human-rights abuses. Again, choose advisors in the host country who are knowledgeable and honest.

Set up a host-country subsidiary with minimal U.S. contact. Almost all international oil and gas concessions involve establishing a local entity that contracts with the government granting the concession. The local entity, however, often is managed by one or more oil companies, frequently in a joint-venture arrangement. Alien Tort cases typically are brought against both the U.S. parent company and the subsidiary. The more the parent is involved in the project, the greater the likelihood that a U.S. court will exercise jurisdiction. This is tricky because the parent will need to monitor overseas operations, but structuring the project to minimize contact with the U.S. will pay off in the long run.

Train employees in the behavior you expect. In conflict-ridden countries, security matters typically represent the most important human-rights issues for energy companies. Safety and security of operations must be maintained, while respecting human rights and fundamental freedoms. The United Nations has published a Code of Conduct for Law Enforcement Officials, and another document, Basic Principles or the Use of Force and Firearms by Law Enforcement Officials. Use these when training security personnel, and give explicit instructions that force should be used only when absolutely necessary. Detail what type of force is commensurate with what type of infraction, and explain what types of force will not be tolerated. Before providing lethal equipment, implement controls to keep it from being misappropriated or diverted to human-rights abuses.

Prepare written materials in the local language, stating the underlying rules you expect security personnel to follow. Require each employee to sign the policies, and keep these documents on file. These can be used later in the company's favor as evidence of company policy forbidding human-rights abuses.

Obtain host-country commitment to respect human rights. If possible, put your policy forbidding human-rights abuses into your contracts with the host country. Admittedly, this will not be possible in some countries where governments already are involved in atrocities condemned by the international community. But in places where fighting is not present, the host government may be willing to adopt the Voluntary Principles on Security and Human Rights as part of the contracts signed in conjunction with the concession. The Voluntary Principles are guidelines several oil companies, governmental agencies and non-governmental organizations created in 2000 to promote respect for human rights in areas where companies explore for oil and gas.

While the principles are necessarily general, they do stress a host government's duty to provide personnel and security for energy facilities in a manner consistent with international human-rights standards.

Monitor the security situation regularly. Employees who work independent of the security function, but who are familiar with these policies, should monitor security personnel. Companies should communicate regularly with host governments and local communities to see what effect their security personnel are having on these communities.

Allegations of human-rights abuse should be recorded and investigated, and energy companies should make sure the investigations are adequate and sufficiently detailed. If employees have engaged in unacceptable behavior, they should be fired.



Molly Steele is a Dallas partner and Kevin Pennell is a Houston associate in the law firm Thompson & Knight LLP. Both attorneys regularly represent U.S.-based energy companies in international matters, including claims filed under the Alien Tort Statute.