Last month, Congress passed the Better Utilization of Investment Leading to Development, a historic piece of legislation creating a new development finance agency: the U.S. International Development Finance Corporation (USIDFC). Aimed at helping developing countries prosper while advancing U.S. foreign policy goals and enhancing American national security interests, USIDFC will combine the U.S. Overseas Private Investment Corporation (OPIC) with various private investments functions of the U.S. Agency for International Development. As the U.S. government agency tasked with helping American businesses invest in emerging markets, USIDFC is expected to continue OPIC’s work by providing financial support to investments in developing countries, including areas of the world that suffer from significant poverty and armed conflict. However, because human trafficking such as forced labor is often prevalent in these regions, current recipients of OPIC funding and new participants under the upcoming USIDFC’s financing initiatives may be subject to significant civil and criminal liability if compulsory labor is used in connection with their U.S. government-supported business ventures and investments.
OPIC Investments and Forced Labor
Since its establishment in 1971, OPIC has supported more than $200 billion of investment in over 4,000 projects around the world. Among its various initiatives, OPIC often makes direct loans and guarantees to projects that are unable to raise sufficient commercial financing including, for instance, oil fields in South America’s drug cartel-infested regions or ore mines in war-torn areas in the Middle East.
Because OPIC is mandated by law to prioritize investments in low-income countries, many of the regions hosting OPIC-funded projects are generally considered as high-risk areas for human trafficking including, in particular, forced labor. Indeed, for instance, while more than a quarter of OPIC’s portfolio is in sub-Saharan Africa, the International Labor Organization estimates that the number of victims of forced labor in this region is over half a million. Similarly, over a third of OPIC’s active portfolio comprises ventures in regions affected by conflict. However, conflict and human trafficking frequently coincide as complex humanitarian emergencies such as armed conflict, civil wars and genocide often mean that vulnerable populations are at an increased risk for exploitation and trafficking.
Accordingly, because forced labor may be prevalent in many OPIC-supported host countries, and as USIDFC is expected to continue OPIC’s prioritization of investments in high-risk areas, current recipients of OPIC funding and future participants in USIDFC-supported projects may be subject to significant civil and criminal liability under U.S. law if compulsory labor is used in connection with their U.S. government-financed projects and investments.
The Trafficking Victims Protection Act (TVPA) is a federal law that grants a private right of action to a victim of human trafficking, such as forced labor. Enacted in 2000 and subsequently revised in 2003, 2005, 2008 and 2013, the TVPA is intended to combat trafficking in persons, especially into forced labor and the sex trade. While forced labor victims have generally invoked the TVPA to seek damages from their traffickers, the statute also provides a cause of action to bring claims against third parties such as investors, lenders, oil and mining companies, real estate developers and suppliers. Indeed, under the TVPA, a victim may bring an action against “whoever knowingly benefits ... from participation in a venture that person knew or should have known has engaged in” trafficking (emphasis added).
Notably, the TVPA imposes corporate liability on entities present in the United States regardless of where the forced labor occurred, thus granting jurisdiction to U.S. courts even in instances where the labor exploitation takes place entirely in a foreign country. Moreover, the TVPA specifically allows U.S. courts to award damages as well as attorney’s fees to the victim of forced labor and, at least in the Ninth and Tenth Circuits, punitive damages. Because such horrific crimes generally have significant and lifelong effects on their victims, defendants in TVPA actions are likely to face damages in the millions of dollars, not to mention significant public relations costs and remediation expenses.
Thus, for instance, participants in an OPIC-financed or USIDFC-supported mining project that uses forced labor may be exposed to corporate liability if they should have known that forced labor was used in connection with the U.S. government-supported investment. Further, as an employee’s knowledge may generally be imputed to its employer, it may be established that a company “should have known” of such a terrible crime where project managers, employees, local agents or other representatives may have witnessed signs of potential labor exploitation such as excessively long or unusual work hours, very young and fearful workers or the use of security measures to keep workers on site.
False Claims Act Liability
Originally enacted during the Civil War to stamp out fraud perpetrated by private companies that sold munitions and supplies to the Union Army, the False Claims Act (FCA) is a federal law that, among other things, allows the U.S. government to bring actions against whoever defrauds the government by submitting false claims. Additionally, any third party may bring a FCA claim on behalf of the government and retain up to 30% of any successful recovery.
In particular, the FCA imposes civil liability on an entity that submits a claim for the purpose of obtaining government funding if the entity was aware that such claim was false, willfully ignored mistakes giving rise to the false statements or claim, or showed a “reckless disregard” toward the circumstances giving rise to the false claim. Generally, to obtain funding from OPIC, investors, lenders, insurers or project sponsors seeking OPIC support are required to meet various OPIC-imposed standards, as well as host country laws and Internationally Recognized Worker Rights (IRWRs), which are defined as “a prohibition on the use of any form of forced or compulsory labor ... a minimum age for the employment of children, and a prohibition on the worst forms of child labor” such as “all forms of slavery or practices similar to slavery, such as the sale or trafficking of children, debt bondage and serfdom, or forced or compulsory labor ....” These provisions are also expected to continue under USIDFC, as OPIC’s policies and procedures, along with its leadership, will transfer to the new agency.
Accordingly, any participant in an OPIC- or USIDFC-financed business that submits or causes another party to submit a financing request to OPIC or USIDFC while certifying compliance with the agency’s forced labor standards may expose itself to significant civil liability if the entity knows that the U.S. government-supported project uses forced labor or if it willfully ignores or recklessly disregards signs of forced labor. Indeed, by knowingly using any form of compulsory labor, or by ignoring signs that the venture may be using forced labor, the agency-financed investment, or any company seeking to secure OPIC or USIDFC financing, may be deemed to have violated the IRWRs, the agency’s forced labor prohibition.
Notably, an FCA violation could have catastrophic consequences for entities receiving OPIC or USIDFC funding. Indeed, as one the most powerful tools in the government’s arsenal to eradicate government fraud, the civil penalty under the FCA can be up to three times the amount of damages sustained by the government. Accordingly, because OPIC loans generally range from $5 million to $50 million, and new financing under USIDFC is expected to increase, penalties for violations of the FCA can be in the hundreds of millions of dollars.
In addition to potential human trafficking civil liability for using forced labor in connection with OPIC- or USIDFC-funded investments, companies involved in OPIC- or USIDFC-financed projects may also be exposed to significant criminal liability if their business ventures benefit from the product of forced labor. Indeed, the TVPA specifically imposes criminal liability on an entity if it knowingly benefits from participation in a venture in “reckless disregard” of the fact that the venture has engaged in forced labor. Notably, in doing so, this criminal provision of the TVPA squarely places the responsibility on the participants in agency-funded investments to not ignore indicia of forced labor.
Furthermore, companies seeking OPIC or USIDFC funding may be subject to additional criminal liability under the FCA if they knew that the agency-supported venture used forced labor in violation of OPIC’s prohibition against human trafficking and submitted a claim for funding with a consciousness that what it was doing was “wrong.” Finally, by receiving OPIC or USIDFC financing while knowingly failing to comply with agency-imposed forced labor standards, companies and individual executives may also be subject to additional criminal liability under various provisions of the U.S. criminal code such as the wire fraud, false statements on loan applications and money laundering criminal statutes.
In sum, to avoid civil and criminal liability and unintentionally contributing to human trafficking, companies and other participants currently involved in OPIC-supported overseas investments and those seeking to secure financing under the soon-to-be established USIDFC should consider incorporating anti-human trafficking due diligence and compliance into their own compliance framework. Doing so is particularly critical for companies operating in high-risk countries that might benefit from forced labor. In addition, companies should proactively conduct employee training on how to identify signs of forced labor, perform an internal review of existing policies and procedures to identify areas that may be subject to exploitation by traffickers (and make needed corrections) and assess their existing and prospective suppliers’ and contractors’ labor practices.
Forced labor and other instances of human trafficking are horrific forms of modern-day slavery, a multi-billion dollar criminal industry where traffickers use force, fraud or coercion to control their victims. Proactively engaging in anti-human trafficking compliance is thus necessary from both a corporate social responsibility and risk management perspective. Indeed, not only is it an effective way to play a significant role in the fight against exploitation, but it also reduces business risk by mitigating a company’s significant exposure to potential civil and criminal corporate liability.