Chicago Global

Governing the World by Law and Lottery?

International Organizations face numerous difficulties due to lack of popular support around the world. They are often seen as inefficient bodies with ineffective policies. The so-called "democratic deficit" is frequently source of complaints. Others are worried about the increasing influence of NGOs that are susceptible to influence from their specific donors. This lack of popular support not only makes enforcement of international policies more difficult. It also increasingly results in violent protest against international organizations, as witnessed at meetings of the WTO, IMF, and the World Bank.

Reasons for the failures of international organizations can be found in principal-agents problems. The principals (the citizens of member states) have little control over the actions of their agents (the different international organizations). The delegation of competencies to international organizations provides no adequate procedures that ensure that the principals can influence the performance of their bureaucratic agents.

Increased transparency could solve the acceptance problem among the world citizen. However, knowledge about the different policies and the reasoning behind it alone does not bring better control over the agents due to the lack of political accountability of the international actors.

Also the more narrow and strict definition of the competencies of international organization as well as of the standards under which they act could tighten the grip on these bodies. This way the detection of failures and the distribution of responsibility for them would be easier. But this approach does not allow for the principals taking consequences out of the failures of their agents.

Relativization of Sovereign Immunity

Every year countries turn to foreign private financial entities in order to obtain finance for several different reasons, from specific projects to be able to pay its short-term internal obligations. However, although it is not the rule, sometimes a country interrupts the payment of its debts with foreign private creditors, not performing its obligations assumed with such foreign private financial entities. And because of that, those financial entities have filed lawsuits in foreign courts in order to recover their losses from the defaults.

Such facts bring to discussion a matter that has been occupying scholars and judges for many years: if countries that are debtors do not perform their obligations assumed before foreign private creditors, can such foreign private creditors charge, in foreign courts, such debts? According to the traditional principle of sovereignty of nations, every and any judicial lawsuit against one State can only be filed in the national courts of such State. In the last decades, however, we have seen a relativization of this principle.

Sovereign immunity can be divided in two parts, that can not be confused: the immunity of jurisdiction, that is related to the immunity of a nation to have a lawsuit filed against it before a foreign court; and the immunity of enforcement, that is related to the immunity of a nation to have an enforcement lawsuit filed against it before a foreign court.

Foreclosure in Indonesia

A dispute between Deutsche Bank and Beckkett Pte Ltd, a Singapore registered group, gained attention among business people both in the western and in the eastern world. It involves one of the first cases following the Asia crisis in the late 90s in which a western creditor to an Indonesian business was able to seize collateral and dispose of it. Therefore, the dispute is relevant both as a legal and as an economic and political issue.

The (undisputed) and simplified facts are as follows: In 1997 Deutsche Bank granted a bridging loan in an amount of $ 100m to a majority owned subsidiary of Beckkett called Asminco Bara Utama. The loan was intended to finance the expansion of Beckkett’s stake from 15% to 40% in Adora Indonesia, one of the largest Indonesian coal mines. The loan was secured by the 40% stake of Beckkett in Adora. Furthermore, Beckkett provided a guarantee. The following year, Asminco defaulted on the loan. After lengthy negotiations Deutsche Bank finally decided to foreclose on the shares and to sell them to another Indonesian business tycoon, Edwin Soeryadjaya, for $ 44.2m.

On February 21, 2006 Beckkett sued Deutsche Bank before the Singapore High Court asking to cancel the sale, return the shares as well as damages and payment for any lost dividends. First, Beckkett claims that Deutsche Bank was obliged under the loan agreement to raise a long term loan agreement when the bridge loan was due. Second, it alleges that Deutsche Bank disposed of the pledged shares at a too low price in order to wind up the guarantor, Beckkett.

Deutsche Bank, counterseeking the remaining amount that is still owed from the loan, both contests the alleged collusion with the buyer when selling the shares and its obligation to raise another loan fund. Moreover, it argues that Beckkett is only interested in the shares of the coal mine company as the price for Indonesian coal has risen significantly after the sale of the shares. With the recent upswing in global commodity prices, that stake is now estimated to be worth more than $400 million.

One Indonesian journalist reports on a blog that one of the parties invited six Indonesian journalists – not including him – to fly to Singapore paying for hotel, air tickets and meals to cover the trial (http://yosef-ardi.blogspot.com/2006/02/beckkett-vs-deutsche-bank-media-law.html). A day later, the journalist reports, an article on the trial was published in the newspaper Bisnis Indonesia. 80% of the article consisted of Beckkett’s arguments. For the journalist, it was clear which party invited the six journalists.

What makes the case so interesting for the business world is less its legal details. More important is its impact on the economic and political situation in the country.

Banning Age Discrimination in Employment - US Lessons for European Lawmakers

In 2000, the European Union adopted Directive 2000/78/EC prohibiting, among others, direct or indirect discrimination on grounds of age in employment. This Directive contains precise definitions of direct and indirect discrimination and of harassment and allows certain exceptions to the principle of equal opportunities, which are defined as legitimate in a limited range of circumstances. Substantial changes in Member State legislation have been observed in recent years in direct consequence of the adoption of the EU legislation. However, some countries, including Germany, have not fully transposed the provisions yet. The Commission has already initiated infringement proceedings against certain Member States and is due to publish a report in 2006 on the state of transposition of Directive 2000/78/EC. The latest deadline for transposing the Directive into German law is December 31, 2006. The German parliament is in the process of meeting that deadline by enacting the Antidiscrimination Act (ADG).

Valuable Secrets in Antitrust Enforcement

With its 2002 Leniency Notice, the EU Commission has established the Leniency Program, one of the most effective tools for prosecuting illegal cartels pursuant Art. 81 of the EC Treaty.

Under the Leniency program, a company involved in a cartel can ‘blow the whistle’ and cooperate with the Commission by providing detailed evidence on its own involvement, as well as that of other undertakings, in the cartel.

The program rewards the first whistleblower with a 100% rebate on the fine applicable to him (participating in the program does not avoid ‘conviction’ for the infringement) - if the information provided allows the Commission to open an investigation - and grants lower rebates to other companies that cooperate after the opening of the investigation.

Great part of the evidence the applicant company submits to the Commission is documentary evidence – notes of meetings, flights schedules and tickets, e-mails – but the most valuable documents are corporate statements, with which corporate officials and attorneys explain to the Commission’s case handlers the functioning of the cartel.

Corporate statement, however, have a highly undesirable downside, when the applicant company is involved in a trans-national cartel and is being tried (or faces a trial) in a third-country jurisdiction (often the US) as a defendant in an antitrust private lawsuit.

The rules of pre-trial discovery, in fact, require the parties to disclose any documents relevant to the claim at trial, including, therefore, any written corporate statements rendered to the EU Commission. The risk of having to disclose self-incriminating information often restraints companies involved in cartels from cooperating with the EU Commission and puts the leniency program – so far a successful enforcement tool – at jeopardy.

Uncle Sam sticks his nose

On February 3, 2006, the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury, enforced an American statute in Mexican territory forcing Mexico City’s Sheraton Hotel, a Mexican company and subsidiary of a U.S. corporation (Starwood Hotels and Resorts Worldwide, Inc.), to expel a group of Cuban citizens out of the premises of the said hotel. The group of Cubans was staying at the hotel attending business meetings with executives of American companies. (1)

The OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries, terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction. (2)

The abovementioned episode was an extraterritorial application of “The Cuban Liberty and Democratic Solidarity Act” -also known as the Helms-Burton Act-. The Act was primarily designed by the U.S. Congress to inhibit foreign countries and U.S. corporations (or their subsidiaries based in third countries), from doing business in or with Cuba.

In fact, the Act expressly urges the President to encourage foreign countries to restrict trade and credit relations with Cuba.

The extraterritorial application of the Helms-Burton Act, had a major impact in Mexico’s political setting and raised the question: How far is the U.S. willing to go with the extraterritorial application of its public policy in order to pursue their international purposes?