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Modeled on standards adopted by the International Finance Corp. (IFC) and developed by leading U.S., U.K. and European banks in conjunction with the IFC, the Equator Principles attempt to shape lending practices to be more attuned to environmental and social issues that relate to project development, primarily in emerging nations. As banks increasingly adopt these guidelines, questions remain as to whether the principles may expose lenders to potential claims in U.S. courts. Any exposure would, in turn, limit the reach of the principles, notwithstanding their worthy goals. Of particular concern is whether the Alien Tort Statute (ATS), 28 U.S.C. 1350, could be used to hold lenders liable in the United States for failing to adhere to the principles if they lend on projects where it is later alleged there were international law violations. While some federal district court decisions have interpreted the ATS expansively to allow claims against private corporations for aiding and abetting violations of international law, the stringent standards for stating a claim under the ATS outlined by the Supreme Court in Sosa v. Alvarez-Machain, 124 S. Ct. 2739 (2004), should significantly reduce the risk that a lender’s adherence to the principles will lead to either viable claims or liability. Formalized in 2003 following discussions between private banks and the IFC, the private development arm of the World Bank, the Equator Principles have been adopted by at least 35 leading financial institutions. See for the principles and a list of financial institutions that have adopted them. Social accountability The principles represent a ground-breaking attempt to provide a framework for the analysis and management of social and environmental consequences of projects with a total capital cost of $50 million or more. Within the framework, each bank develops its own internal practices and policies. The principles roughly adopt the social and environmental analysis, standards and guidelines established by the World Bank and the IFC. The banks agree, before lending to environmentally sensitive projects, to require from the borrower environmental-impact assessments, public consultations and increased transparency. As such, the principles contemplate that lenders will have access to, and will monitor, a significant flow of information concerning the project’s compliance with environmental and social laws and applicable standards. For example, with respect to projects classified as high or medium risk (“Category A” or “Category B” projects), an environmental assessment must be completed, addressing the project’s compliance with host country laws, required permits and regulations, as well as with the minimum standards under the World Bank and IFC’s Pollution Prevention and Abatement Guidelines. If the project is in a low- to middle-income country (as defined by the World Bank), the environmental assessment must also address the project’s compliance with the IFC’s Guidelines and Safeguard Policies, which include policies addressing environmental assessment, natural habitats, pest management, forestry, safety of dams, indigenous peoples, involuntary resettlement, cultural property, child and forced labor, and international waterways. An environmental management plan (EMP) must be prepared by the borrower for all Category A and selected Category B projects to address mitigation, action plans, monitoring, management of risk and schedules. The borrower also must covenant in the loan documents to comply with the EMP in the construction and operation of the project, to provide regular reports prepared by in-house staff or third-party experts on the borrower’s compliance with the EMP and, where applicable, to decommission the facilities in accordance with an agreed decommissioning plan. If the borrower fails to comply with the covenants, the principles require the bank to “engage” the borrower in seeking solutions to bring it into compliance. Significantly, in the principles’ preamble, the banks pledge not to “provide loans directly to projects where the borrower will not or is unable to comply with our environmental and social policies and processes.” Although the principles are adopted voluntarily by each bank, and expressly disclaim any legal obligation to any person or to the World Bank or the IFC, as a practical matter a bank’s public promise is likely to be viewed as a substantial commitment to adhere to the principles. Therefore, to the extent a bank ignores information that it receives, fails to receive appropriate information or elects to proceed in the face of damaging information, it is possible that a plaintiff could seek to use a bank’s failure to act in accordance with the principles as a basis for a claim under the ATS. (Other potential claims that may arise from the adoption of the principles, if any, are beyond the scope of this article.) Alien tort claims The ATS, enacted in 1789, provides that U.S. federal courts “shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.” Since the 2d U.S. Circuit Court of Appeal’s decision in Filartiga v. Pena-Irala, 630 F.2d 876 (2d Cir. 1980), which first sustained a private cause of action under the ATS, numerous lawsuits have been filed against U.S. and foreign corporations not only for allegedly committing violations of the law of nations, but also for “aiding and abetting” such violations by others. These lawsuits have included efforts to hold private corporations liable for activities as limited as making loans or engaging in other ordinary commercial conduct with governments known to have engaged in human rights violations. See, e.g., In re South African Apartheid Litig., 346 F. Supp. 2d 538 (S.D.N.Y. 2004). Significantly, no international treaty or convention has ever authorized the imposition of aiding-and-abetting liability under international law. However, prior to the Supreme Court’s 2004 decision in Sosa, a handful of district courts concluded that allegations of aiding and abetting a violation of international law could be used to state ATS claims. See, e.g., Doe v. Saravia, 348 F. Supp. 2d 1112 (E.D. Calif. 2004) (defendant’s alleged participation in assassination of archbishop); Presbyterian Church of Sudan v. Talisman Energy Inc., 244 F. Supp. 2d 289, 321 (S.D.N.Y. 2003) (defendant’s alleged complicity in acts of torture, enslavement, war crimes and genocide committed by the government); Mehinovic v. Vuckovic, 198 F. Supp. 2d 1322, 1355 (N.D. Ga. 2002) (involving claims of abuse and torture at detention facilities); Bodner v. Banque Paribas, 114 F. Supp. 2d 117, 127-28 (E.D.N.Y. 2000) (allegations defendants aided and abetted the Vichy and Nazi regimes’ plunder of plaintiffs’ bank accounts). The sole appellate decision to reach a similar conclusion was vacated pending its rehearing en banc and then settled before the issuance of the en banc decision. See Doe v. Unocal Corp., 395 F.3d 932, 947 (9th Cir. 2002), vacated by 395 F.3d 978, 979 (9th Cir. 2003); Doe v. Unocal Corp., 403 F.3d 708 (9th Cir. 2005). Notably, each of those cases involved corporate acts amounting to more than ordinary commercial conduct. However, the broad wording of some of the decisions has encouraged plaintiffs to attempt to extend civil aiding-and-abetting liability under the ATS to claims involving lenders, manufacturers and merchants engaged in routine commercial conduct. See, e.g., In re South African Apartheid Litig., discussed above. Supreme Court guidance Last year, in Sosa, the Supreme Court held for the first time that the ATS is strictly jurisdictional and does not create independent causes of action. Although the court held that, under certain very limited circumstances, federal courts may recognize private tort claims for violations of international law, the court set significant limits on that recognition. It said that “courts should require any claim based on the present-day law of nations to rest on a norm of international character accepted by the civilized world and defined with a specificity comparable to the features of the 18th-century paradigms we have recognized.” 124 S. Ct. at 2761-62. The court emphasized that federal courts have “no congressional mandate to seek out and define new and debatable violations of the law of nations,” id. at 2763, and should be sensitive to “the practical consequences of making [new claims] available to litigants in the federal courts. ” Id. at 2766. Although not cited in Sosa, the Supreme Court’s reasoning is consistent with the 2d Circuit’s decision in Flores v. Southern Peru Copper Corp., 414 F.3d 233, 248 (2d Cir. 2003), in which the court stressed that norms of customary international law enforceable under the ATS are limited to those that “States universally abide by, or accede to, out of a sense of legal obligation and mutual [as opposed to merely several] concern.” In rejecting claims premised on international environmental law, Flores emphasized that legitimate sources of international law should be interpreted narrowly to include “formal lawmaking and official actions of States,” such as treaties ratified by a majority of states and to which those states have consistently adhered. Id. at 250, 256. The court expressly rejected as sources of international law, among other things, “customs or practices based on social or moral norms,” various nonself-executing treaties or unratified conventions, non-binding U.N. General Assembly resolutions and other multinational declarations of principle. Under the reasoning of Sosa and Flores, voluntary principles such as the Equator Principles should not be considered established international law that might be actionable under the ATS. The recent trend of ATS case law, as demonstrated by decisions such as Sosa and Flores, should provide increased comfort to lenders that adhering to voluntary principles such as the Equator Principles should not expose them to ATS claims. Moreover, although some federal courts have continued to suggest post- Sosa that aiding-and-abetting claims may be sustained under the ATS-see, e.g., In re “Agent Orange” Prod. Liab. Litig., 373 F. Supp. 2d 7, 52-54 (E.D.N.Y. 2005) (noting in dictum that corporations may be held liable under the ATS for “aiding and abetting” violations of international law)-both the doctrinal and prudential considerations outlined by the court in Sosa suggest that courts should not recognize such claims even where the lender becomes aware of such practices as a result of the Equator Principles. Owen C. Pell and Richard A. Horsch are partners in the New York office of White & Case. Alycia Regan Benenati, an associate in that office, assisted in the preparation of this article.

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