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Apartheid Haunts Business

Published by MAC on 2004-09-12


Apartheid Haunts Business

By Jon Robins, Financial Times

September 12 2004

South Africa - They are victims of what could be viewed as one of the greatest corporate, accounting, banking, financial services and pension and benefit fund frauds in history." So says Ed Fagan, a controversial US lawyer, about his latest clients. He was not describing the employees of a corrupt company, but black South Africans who suffered under the brutal apartheid regime.

Mr Fagan, who made his name suing Swiss banks on behalf of Holocaust survivors, is seeking $20bn (£11bn) in reparations from companies that, he argues, supported apartheid. They include the UK banks NatWest, Barclays and Standard Chartered.

In the last two months Mr Fagan has put corporate South Africa on its guard and has subpoenaed both Nelson Mandela and Archbishop Desmond Tutu to give evidence.

The law suits, filed in New York, promise to be a critical test of the limits of the 18th-century law known as the Alien Tort Claims Act. Resurrected in the 1970s, the act is now increasingly used as a means of holding multinationals to account in the US courts for human rights abuses committed abroad. To its supporters, such as Martyn Day, campaigning lawyer and senior partner at Leigh Day, it is "the most progressive and pro-human rights law on the US statute books". But its critics believe the law has the potential to wreak havoc on the global economy. Local businesspeople are rattled. "There needs to be a predictable environment in which to operate," says James Lennox, chief executive of the South African Chamber of Business.

"This sort of extra-territorial application of US domestic law is creating an uncertain environment for investment. It is opportunism and doesn't contribute to the overall objective of improving the atmosphere in which South Africans live," he adds.

The suggestion that the claims have been co-opted by foreign lawyers is denied by Khulumani, a support group for victims of apartheid. In November 2002, Michael Hausfeld, a US lawyer, filed a law suit in New York on their behalf against 20 multinational corporations for "knowingly aiding and abetting the apartheid enterprise".

International Business Machines, for example, is charged with supplying computers that enabled the government to create the hated "pass book" system that required all black people, banned from the streets in white areas after dark, to carry passes.

Thandi Shezi, a Khulumani project worker, has been preparing an affidavit, due to be filed in the US courts today, backed by Archbishop Tutu and Joseph Stiglitz, the Nobel prize-winning economist. She draws a distinction between the Khulumani action and other suits. "They're class actions which call upon everyone affected by apartheid. They are asking for the impossible because you simply can't claim for the whole country," she says. "We are suing under the terms of the Truth and Reconciliation Commission for 'gross human rights violations'."

Gary Clyde Hufbauer, Reginald Jones senior fellow at the Institute for International Economics, takes a critical view. "If these South African cases are victorious and Fagan wins settlements it's going to be pretty harmful not just for South Africa but for all developing countries," he says. "Business will be wary about getting involved because of fear of future litigation." He estimates more than 50 multinationals have been sued under the act, claiming $200bn in damages.

At the end of June the US Supreme Court handed a partial victory to business when it narrowed the scope of law suits that can be brought in US courts. "The mere fact that a company was in a country - whether it's Burma's military regime or apartheid South Africa - might be odious but it shouldn't necessarily make them subject to liability," says Stuart Eizenstat, deputy secretary of the Treasury in Bill Clinton's administration and special envoy for Holocaust-related issues between 1995 and 2001. "The Supreme Court makes that clear."

Mr Eizenstat describes the IBM charge as "very borderline and possibly dubious". But the former diplomat welcomes the ruling insofar as it has not closed the door on such cases. "The German settlements didn't happen because companies suddenly woke up 60 years later with a pang of conscience," he adds.
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