Recent Alien Tort Statute Case Cautions Against Corporations Doing Business With Foreign Governments

A federal district court in New York recently issued an important decision setting the limits of corporate liability under the Alien Tort Statute (“ATS”) in a case concerning corporate defendants who did business with the South African apartheid government. The ATS allows aliens to sue in U.S. courts for violations of international law. The decision in In re South African Apartheid Litigation, No. 02-MDL-1499 (S.D.N.Y. Apr. 8, 2009), limits liability to situations where a company knowingly provides goods and services that are the actual means by which an international law violation occurred.

The plaintiffs in South African Apartheid are large classes of black South Africans who suffered damages as a result of the country’s apartheid policies from 1960 to 1994. The defendants are several multinational corporations, including Ford Motor Co., Daimler, IBM, Fujitsu and two international banks that did business with the South African government during that time period. The plaintiffs claimed they suffered harms ranging from discriminatory employment practices and arbitrary denationalization to torture and extrajudicial killing. They sued the defendants based largely on the theory that the corporations aided and abetted South Africa’s repressive regime by providing goods and services to the government.

Following Second Circuit precedent, the court first held that corporations may generally be held liable under a theory of aiding and abetting an ATS violation. The court then described the two requirements for stating a claim under this statute.

First, a plaintiff must allege that the corporation’s conduct was wrongful. The court noted that it is “undisputed that simply doing business with a state or individual who violates the law of nations is insufficient to create liability under customary international law.” Rather, the plaintiff must show that the corporation’s conduct had a “substantial effect on the perpetration of a crime.” The court explained that the “substantial effect” test means that the defendant provided “the means by which a violation of the law is carried out.” For example, merely loaning money or selling raw materials to an entity that violates the law of nations would not meet this standard; providing poison gas used to commit an actual violation would.

Second, a plaintiff must also allege that the corporation had the requisite state of mind to commit the violation. The court rejected the defendants’ argument that plaintiffs must show that the defendants knew and intended that the goods or services would further the primary violation. Rather, it adopted a lower standard: that the defendant must only “know that its actions will substantially assist the perpetrator in the commission of the crime or tort in violation of the law of nations.”

Applying these standards, the court came to different outcomes based on the specific allegations.
The court dismissed claims against the automotive defendants who were alleged to have sold commercially-available cars and trucks to the South African government. However, the court allowed claims to go forward against these defendants for selling armored personnel carriers and military fittings actually used in extrajudicial killings and other international law violations.
The court dismissed claims against the technology companies that were based on the allegation that the computer companies had merely sold computers to the South African Department of Prisons, even though there was “widely held knowledge” of abuse at those prisons. However, the court denied the motion by these companies to dismiss claims based on the allegations that those companies had knowingly provided computers, training and software specifically designed to allow the South African government to track and then denationalize black citizens.

The court dismissed all claims against the banks because the allegations that they had loaned money to the South African government and bought its defense bonds were “not sufficiently connected to the primary violation.” The court also rejected claims based on the allegation that the banks had engaged in racially-discriminatory employment practices because these practices “were more akin to acquiescence to—rather than the provision of essential support for—apartheid.”

While companies may continue to sell goods and services to foreign governments, the South African Apartheid case extends the limited jurisprudence in this area and makes the decision whether to do so more difficult. In a 2005 decision, Corrie v. Caterpillar Inc., a federal district court in Washington State dismissed claims against Caterpillar Inc. for selling bulldozers to the Israeli Defense Forces, which then used them to destroy homes in Palestine, causing personal injury and death. The court concluded that because Caterpillar had sold “a legal, non-defective product” to Israel, the company could not be held liable under the ATS. In contrast to Corrie, the South African Apartheid decision requires courts to look beyond the legality of the product on its face, to its actual use. Under South African Apartheid, provision of a perfectly legal product to a foreign government that then uses it in a wrongful manner can form the basis of ATS liability if the company knew of the intended use. Thus, under South African Apartheid, companies must exercise caution when selling goods and services to foreign governments, particularly when those governments have problematic human rights records, or where the goods are intended for military or security use.

The South African Apartheid case also makes clear the need for certainty on the question whether aiding and abetting liability is even available under the Alien Tort Statute and the precise standard for such liability. The Circuits are deeply divided over these issues. The ATS normally provides a remedy only for action by a state, but ATS plaintiffs have used the aiding and abetting theory to expand the statute’s reach to include multinational corporations. The South African Apartheid case carries that expansion farther than ever before, creating new and greater risks for multinational corporations. Moreover, as the Bush Administration argued in the South African Apartheid case, the theory can also upset diplomatic efforts, particularly with regard to countries—like South Africa—whose policies the United States seeks to change through engagement. Last year, recusals prevented the U.S. Supreme Court from mustering a quorum to hear the South African Apartheid case, but it seems certain that the aiding and abetting theory will eventually be the subject of Supreme Court review.