Economic Implications of the Alien Tort Statute

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I. INTRODUCTION

The present context for discussing the impact on business of lawsuits under Alien Tort Statute (ATS) (1) is the Supreme Court's consideration of Kiobel v. Royal Dutch Petroleum Co. (2) The Court's decision on the core issue of corporate liability may settle that issue, but on March 5, 2012, a week after oral argument, the Court issued an order for a rehearing on the issue of extraterritoriality, which had figured prominently in its questioning). (3) The Court set a briefing schedule ending in June, and set October 1, 2012 for reargument.

My central contention here is that U.S. business has been frustrated, at least since the Supreme Court's 2004 decision in Sosa v. Alvarez-Machain, (4) by the prospect that lengthy and expensive lawsuits may be lodged against corporations on an ill-defined universe of grounds. Lawsuits under the ATS have significant tangible and intangible costs to corporate defendants, as well as to targeted countries and to the United States as a whole. Some of these costs, such as legal fees, are easily quantified, while others, such as reputational damage, are more difficult to calculate. Second-order costs, such as opportunity costs in lost commerce to developing economies, are simply unmeasurable, but no less real.

Any serious assessment of the costs of ATS lawsuits would also assess their benefits. Who gains when a company is sued under the ATS? Does the threat of ATS lawsuits affect corporate behavior? Does the possibility of being sued increased corporate sensitivity to human rights or does it disincline them to invest in countries whose governments have poor human rights records? Is the impact of the ATS exclusively at the level of the firm or are there macro-economic consequences?

Before addressing some of these questions, let me say that the standard for aiding and abetting that ultimately prevails in ATS litigation has an important bearing on any cost-benefit analysis. Because a "knowledge" standard allows more scope for suits being filed than a standard of "intent," one can assume that the costs will be higher if a knowledge standard is affirmed. To this end, the National Foreign Trade Council (NFTC) and USA*Engage along with five other trade associations filed an amicus brief with the Supreme Court in Kiobel arguing that "'purpose to facilitate' is the required mental element for aiding-and-abetting claims under the ATS" and not a standard of mere knowledge. (5)

Unless one takes a purely punitive view of ATS litigation, the benefit must be found in somehow changing corporate behavior. Of course, one consequence of proliferating ATS suits may be to deter foreign direct investment in target countries. This is because a broad construction of a "knowledge" standard potentially covers a wide spectrum of corporate activity, and is likely to increase the number of lawsuits and decrease the propensity of companies to invest in such countries. Since the relevant actor in these cases is the government of the country at issue, private investors lack control, or in most cases influence, over the behavior of those governments. In addition, governments change. A government with a good human rights record could be succeeded by one with fewer scruples. A corporation with a direct investment premised on a return over a lengthy period of time faces a dilemma and may well divest rather than face possible ATS suits.

Take Burma, for example. After decades of abysmal human rights performance, the military government has released Aun San Suu Kyi and has held elections, in the wake of which the United States announced the lifting of some of its sanctions. It is not unthinkable that the U.S. government will at some point encourage American companies to invest, as it has done in many other cases. Given a broad construction of a "knowledge" standard for ATS lawsuits combined with the possibility of Burma's government reverting to type, the ATS becomes a significant factor in any cost-benefit analysis and a real deterrent to investment. …