Lessons from the ANZ-Phnom Penh Sugar Case for the OECD National Contact Point System of Corporate Accountability

I. Introduction

In February 2020, following a decade-long struggle for justice, a determined group of displaced Cambodian farmers and two advocacy organizations (Inclusive Development International and Equitable Cambodia) reached a landmark agreement with the Australia New Zealand Banking Group (ANZ) to provide a financial pay-out to the farmers for their suffering. The agreement set an important human rights precedent for the global banking industry. It was the first time known that a commercial bank made a financial contribution to remediate harms caused by one of its corporate customers, after acknowledging that its human rights due diligence had been inadequate.¹ The case was also a rare example of a community receiving financial compensation through the Organization for Economic Cooperation and Development (OECD)’s voluntary system of corporate accountability (the OECD’s National Contact Points or NCPs). While the final outcome was positive, its singularity and the immense effort, tenacity and resources required in obtaining it, demonstrate both what is wrong with this corporate accountability system and what reforms are needed to reach its potential to advance greater business respect for human rights.

II. Contributing to Harm

The Cambodian farmers (more than 1500 families) were forcibly evicted from their land in 2010 and 2011 to make way for a sprawling sugarcane plantation. The company, Phnom Penh Sugar, used the police and military, including a former Khmer Rouge battalion, to carry out the land grab, destroying crops the local families relied upon for subsistence, and clearing forests in a protected wildlife sanctuary.²

A human rights impact assessment, published by Inclusive Development International and Equitable Cambodia in 2013, found that the forced evictions led to a range of adverse human rights impacts for the displaced population. This included, inter alia, the economic exploitation of children who were forced to drop out of school and work on the sugar plantation as a result of their families’ loss of land.³ The organizations documented widespread use of child labour at the Phnom Penh Sugar plantation.⁴

At the time, Cambodia was a hotbed of forced displacement of local smallholder farmers from their productive land to make way for large-scale industrial plantations. For most of these farming communities thrust into poverty, holding the companies behind these land grabs accountable and obtaining remedy would prove elusive – and most, not seeing a viable and accessible path to justice, did not have the means to try.

For years, this appeared to be the case for the families displaced by the sugarcane plantation. However, in January 2014, two confidential social and environmental assessment reports anonymously leaked to Inclusive Development International revealed that ANZ Royal Bank (at the time, a controlled entity of ANZ) provided significant financing to the sugar company. While it was shocking to learn that ANZ would finance a project that had been widely reported in Cambodia’s English language newspapers to have involved a violent land grab, this involvement opened a pathway for the communities to pursue redress.

Working with the communities, Inclusive Development International and Equitable Cambodia sought to ensure that the news of ANZ’s role in this high-profile forced eviction case made headlines in Cambodia and Australia.⁵ They also requested a meeting with the bank, where community representatives were for the first time able to sit opposite bank managers and describe the harms they had suffered, and which the bank had profited from. The bank made some efforts to push its client to re-dress the harms, although the organizations did not believe that it used its full leverage. Soon afterwards, ANZ announced that the company had repaid its loan early and the business relationship had ended.

There is a lot of discussion today about what constitutes ‘responsible exit’ as an investor. It was clear back in 2014 that in cutting its ties and attempting to wash its hands of the embarrassing matter while communities continued to languish, ANZ had not exited its relationship with its recalcitrant client responsibly.

Inclusive Development International (led by the authors) and Equitable Cambodia explored potential causes of legal action in Australia, but there were too many barriers. With no effective legal avenues in Cambodia either, the organizations turned to a small government body: the Australian National Contact Point for Responsible Business Conduct (AusNCP). National Contact Points (NCPs) are government offices, which must be established by all adherents to the OECD Guidelines for Multinational Enterprises (OECD Guidelines) to promote the guidelines and handle complaints about non-conformance. At that time, NCPs were even more obscure as a path to remedy than they are today, and the idea of using one to hold a bank accountable in this context felt like a ‘Hail Mary’. However, without any other viable recourse mechanism, this was the communities’ only shot, so they agreed to try it.

III. The AusNCP Case

Inclusive Development International and Equitable Cambodia filed a complaint to the AusNCP in October 2014 on behalf of more than 600 families.⁶ The complaint argued that ANZ breached its responsibilities under the OECD Guidelines when it provided a loan to a company that had already caused serious human rights violations, from forced displacement to the use of child labour – violations that continued after ANZ’s loan supported the expansion of the sugar project. The complaint contended that the bank knew or should have known about the serious human rights risks and impacts at the time of approving the loan, but failed to use its leverage to prevent or remediate the harm. The organizations argued that, as a result, ANZ had contributed to the harms and should now contribute to remedy, irrespective of having exited the relationship.

Complaints of this kind against banks were novel at the time and there was little global precedent for the AusNCP to look to. Moreover, the AusNCP’s office was under-staffed, flawed in its structure, and ill-equipped to handle the matter. The office was not only terribly inefficient and lacking in human rights expertise, but it appeared to have a strong pro-business bias.

A first draft ‘final decision’ by the AusNCP that was shared with the complainants was, in the opinion of Inclusive Development International and Equitable Cambodia, riddled with erroneous findings of fact and a deeply flawed interpretation of the OECD Guidelines. In a letter to the AusNCP, the organizations argued that the draft decision demonstrated ‘an alarming lack of impartiality and a blatant bias toward ANZ’, which was grounds for a submission to the OECD’s Investment Committee that the AusNCP was failing to fulfil its responsibilities with regard to its handling of complaints.⁷

Had this draft decision gone unchallenged, it would have set back the cause of responsible business conduct by setting a regressive and poorly reasoned precedent in the field. However, the complainants’ vigorous challenge of the AusNCP’s draft final statement managed to keep the case open until the Australian government began to take the NCP more seriously.

That happened in 2017, when the AusNCP was finally staffed with new dedicated personnel and underwent an independent review that led to significant reforms.⁸ The changes were immediately apparent to the complainants. They were now interfacing with professional staff with subject matter expertise who began handling the complaint more impartially and efficiently. They took a fresh look at the complaint, admitted that it had been handled badly, and started again.

By this time, there had been progress in the norms and expectations of the financial sector, including new guidance from the OECD on responsible business conduct for investors, which were broadly in line with the complainants’ arguments.

In 2018, the AusNCP published a final statement. While cautious in its approach, it broadly validated the complaint, determining that ANZ’s actions were inconsistent with its own human rights policies and the OECD Guidelines. Crucially, it made recommendations for improvements and committed to following up on the implementation of those recommendations twelve months later.⁹

In the authors’ view, the recommendations were not bold enough. The AusNCP recommended forward-looking actions relating to ANZ’s internal due diligence processes and the establishment of a grievance mechanism, but it demurred on recommending that ANZ contribute to remedy. It was silent on the question of what, if anything, ANZ should do to contribute to the remediation of harms suffered by the Cambodian families – which was of course the main reason the communities took the risk of filing the complaint in the first place.

Moreover, despite being one of the only forums for corporate accountability for human rights abuses globally, NCP decisions are not enforceable. So, the complainants were left with vindication on paper of their arguments and the potential for some internal changes at ANZ at the bank’s discretion, but little else.

IV. Contributing to Remedy

Without a strong recommendation on remediation, it fell on the communities and their supporters to use the AusNCP’s cautious but favourable final statement as a new tool to campaign for remedy for the Cambodian families. They took to the media and shareholder advocacy and asked Australian parliamentarians to intervene. The message was straightforward and compelling: the bank should not profit from displaced Cambodian farmers and instead, it should divest itself of the revenue it earned unjustly from the loan and provide those funds to the affected families to help them get back on their feet. In public forums and private meetings, the authors and other supporters urged ANZ’s CEO to ‘do the right thing’.¹⁰

At the 12-month mark, the AusNCP consulted with the parties on ANZ’s progress in implementing the recommendations. To its credit, the NCP saw an opening for negotiation at that point and seized it. By then, reforms of the AusNCP had resulted in the appointment of an independent examiner to handle cases, and a multi-stakeholder Governance and Advisory Board to provide oversight and expertise; and again, the changes showed.

The AusNCP used its good offices – flexibly and practically – and offered to facilitate a conciliation between the parties. This is unusual at this late stage of an NCP process, but this flexibility was pivotal to achieving a result.

Five and a half years after submitting the complaint – that Hail Mary for the long-suffering communities – the complainants walked into a conference room in Melbourne, Australia to meet with ANZ managers. By the end of the day, they walked out with a deal.

ANZ agreed to publicly acknowledge its due diligence failure and to pay ‘the gross profit it earned from the loan to help alleviate the hardships faced by the affected communities and support their efforts toward rehabilitation’.¹¹

It also committed to establishing its own human rights grievance mechanism, which it has since done based on consultations with an expert working group, including business, academics and advocacy organizations, including Inclusive Development International and Equitable Cambodia. Both outcomes set a precedent in the financial sector. It was only the third known time in the 20-year history of the NCP system that has received hundreds of complaints that a process resulted in a financial remedy to community complainants.¹²

V. Conclusions

The outcome of the AusNCP case was not only good for the community, it was good for ANZ, which has since received considerable praise for its leadership on sustainability and human rights.¹³ However, the outcome took far too long and relied on years of intensive advocacy. Responsible business conduct and a small measure of justice for communities should not be that hard to achieve.

To achieve more positive results like this one, and the prevention of business-caused harms in the first place, NCPs need to be made significantly more effective as an avenue for accountability and remedy.

That requires NCP offices to have sufficient budgets and appropriate staffing, with subject matter expertise. It requires operating procedures that are practical, fair, and aim to address the power imbalance between communities and corporations. It requires savvy mediators, experienced in the complexities of community–company conflict resolution.

Most importantly, for NCPs to be effective, they must issue final statements that are based on a robust examination of the issues at hand, with clear public determinations regarding business enterprises’ conformance with the OECD Guidelines. When breaches of the Guidelines are found, NCPs should make meaningful recommendations that are centred on the provision of remedy and assurance of non-recurrence of violations. They should also follow up to monitor whether the company is implementing those recommendations. These characteristics (among others) are crucial to the effectiveness of non-judicial grievance mechanisms, and yet many NCPs do not have this basic mandate.

Ultimately, there should be consequences for recalcitrant corporations that refuse to engage in good faith in the complaint process or refuse to implement remedial recommendations. Consequences, imposed by OECD member governments, could include exclusion from trade promotion privileges, public procurement contracts and export finance support.

The future of responsible corporate conduct is only as strong as the enforcement mechanisms for business and human rights regulations and standards. Until meaningful human rights due diligence legislation is in place in the home country, jurisdictions of the world’s multi-national corporations, including civil remedies for the victims of extra-territorial violations, the NCP system will remain a pivotal if precarious lifeline for communities seeking remedy. Unfortunately, the OECD missed the opportunity to strengthen the NCP system during its 2023 update of the Guidelines and Implementation Procedures. While significant improvements were made to the substantive standards in the Guidelines, governments are still given broad discretion in how they organize and run their NCPs, including whether or not to even issue determinations. This means it will fall to individual member governments to strengthen their NCPs in order to ensure effective implementation of the Guidelines.

While no substitute for legislation, if the reforms to NCPs outlined above were introduced by OECD governments around the world, we could see a real shift in business conduct, and desperately needed access to effective remedy for victims of corporate abuse. If governments seize the opportunity to fulfil their own human rights obligation to ensure access to remedy by reforming and empowering their own NCPs, just outcomes like the one achieved in the ANZ case may no longer prove so rare and elusive.