Responsible Business in Occupied Territories

For more than a decade, there has been growing recognition that companies must respect human rights. That perspective was institutionalized when the United Nations (UN) Human Rights Council approved the UN Guiding Principles on Business and Human Rights in 2011. While the international community broadly recognizes companies’ human rights and humanitarian law responsibilities, they are not always clear in specific situations, such as in territories under military occupation. Despite the lack of clarity, companies face increasing scrutiny and criticism when operating in such circumstances.

In early January, for example, a small Israeli-Palestinian news site called +972 reported that AirBnB, the US-based online real estate rental and tourism service, lists homes for rent in Israeli settlements in the occupied West Bank. Within a month, the story made its way into the New York Times and Washington Post, putting AirBnB on a growing list of businesses under pressure for their activities in territories under military occupation. Most of the companies concerned have links either to Israeli settlements, or, to a lesser extent, to Moroccan-occupied Western Sahara. The Norwegian pension fund, KLP, for example, has excluded 10 companies for activities in these two places.

The public debate over these situations has largely focused on pressuring companies to help achieve broader political outcomes or to support sanctions on an occupying power. Despite the competing political objectives that cloud this debate, occupying powers have humanitarian law obligations related to economic activity in situations of occupation. And companies should be attuned to their unique responsibilities in such situations. This article seeks to assess and clarify the responsibilities of companies under international humanitarian and human rights laws and standards in situations of occupation.

I. Business Responsibilities in Occupied Territories

The UN Guiding Principles expect companies to conduct due diligence to identify and mitigate the adverse human rights impacts directly linked to their activities. Occupation, as with other conflict-affected areas, presents heightened risks of human rights abuses. Human Rights Watch has documented numerous cases in which political repression in occupied territories led to violations of free expression and assembly and due process, as well as systemic discrimination against the protected population. Businesses operating in occupied territories also have to respect particular elements of international humanitarian law related to situations of occupation.

This body of law, which applies to armed conflict and military occupation, is principally drawn from two treaties: the Hague Regulations of 1907 and the Fourth Geneva Convention of 1949. In addition to ensuring the protection of the territory’s population, these laws aim to preserve the status quo ante, prohibiting an occupier from amending the territory’s laws, altering its demographics, or using its natural resources except when strictly necessary for legitimate security needs. This also means that permanently taking resources such as land or reshaping the territory’s economy to the occupied population’s detriment runs afoul of international law.

Human Rights Watch research has found that the restrictions international law places on occupying powers, and by extension, businesses’ responsibility to respect them, are vital to protecting the rights of a vulnerable population living under foreign rule. By helping to entrench an occupying power’s unlawful civilian and economic presence in the territory it occupies, businesses risk contributing to the erosion of these rules, causing both immediate and long-term harm.

Determining if a Territory is Occupied

 Determining whether a territory is occupied can be a first challenge for businesses. The International Committee of the Red Cross (ICRC), whose mandate is to safeguard international humanitarian law, does not consistently publicize its determinations, and the International Court of Justice (ICJ), the United Nation’s principal judicial organ, addresses a territory’s status only when relevant to a case before it. Occupying powers also often dispute the status of the territory they occupy, undermining the ability to identify when the laws of occupation apply. Nevertheless, wherever possible, businesses should rely on ICJ decisions or the ICRC.

Businesses may need to assess whether they are operating in an occupied territory, even without authoritative third-party guidance.  There are some sources for making that determination. The Hague Regulations specify that a “territory is considered occupied when it is actually placed under the authority of the hostile army.” The absence of a widely accepted peace settlement following an armed conflict may be a strong indication that a territory is occupied, as is the presence of foreign forces.

Due Diligence Requirements

A business has a responsibility to conduct due diligence to ensure its activities respect specific provisions of international humanitarian law, as well as human rights when operating in occupied territory. In some cases, improper business activity will be self-evident, such as facilitating direct abuses of the protected population. In other cases, business activity may appear routine yet contribute to actions prohibited under international humanitarian law.

Two such prohibitions pose particular risks. First, an occupying power may not confiscate, exploit or use the natural resources–including land–in the territory it occupies for its domestic benefit. In other words, any taxes, royalties or other fees companies pay to the occupying power for operating in or extracting resources from an occupied territory should be reserved for the benefit of the protected population. Second, an occupying power is barred from transferring its own civilians into the occupied territory. This prohibition includes facilitating transfer of “voluntary” settlers by providing resources, special legal protections, or other government benefits. In territories with large settler populations, particularly in the framework of settlements, there is a high risk that businesses may improperly contribute to this violation, such as by providing services or financing infrastructure that enables settlers to live there. Businesses’ responsibilities with respect to natural resources and settler populations are further fleshed out below. The case studies serve to illustrate these particular risks and are not a comprehensive analysis of the risks posed by each occupation.

As in other conflict-affected areas, companies operating in occupied territories have a heightened responsibility to operate transparently, including with respect to the nature of their operations, flow of funds, and labeling of goods and properties. The UN Guiding Principles expects companies “whose operations or operating contexts pose risks of severe human rights impacts,” which undoubtedly includes military occupation, to “report formally on how they address them.” In some cases, states also have an obligation to ensure transparency and accuracy so as not suggest that they recognize the occupying power’s sovereignty, such as with country-of-origin labeling of imports.

II. Responsibilities Regarding Natural Resources

International humanitarian law permits an occupier to use natural resources in occupied territory that are not under private ownership subject to two limitations, the first restricting the extent of use and the second the purpose. Article 55 of the Hague Regulations of 1907 makes the natural resources, including land and water, subject to the “laws of usufruct.” Literally interpreted, this gives an occupier the right to use the “fruit” of a resource, but not to damage or diminish its capital, which would appear to limit exploitation solely to renewable resources. One school of thought interprets this rule more broadly to allow an occupier to mine even non-renewable resources at existing levels, but not to open new mines or significantly deplete existing ones.

Even the broader interpretation, however, is limited by the customary international law principle forbidding an occupier from using the occupied territory’s resources for its own domestic purposes. This principle, which according to the ICRC dates to President Abraham Lincoln’s Lieber Code in 1863, is found in multiple sources and has been affirmed in numerous legal decisions and by state practice. A recent articulation of this principle can be found in the Bruges Declaration on the Use of Force, adopted in 2003 by the Institut de Droit International, an independent institute dedicated to the study and development of international law founded in 1873. The Declaration states that an occupier may use the resources in the territory it holds only “to the extent necessary for the current administration of the territory and to meet the essential needs of the population.” The International Court of Justice has referred to this principle in a number of decisions, including when it found in 2005 that Uganda unlawfully allowed its nationals to exploit Congolese natural resources during a partial occupation of territory in the Democratic Republic of Congo. A 1977 US State Department memorandum cited this principle to oppose Israel’s use of Egyptian oil fields during its occupation of the Sinai Peninsula. And the United States and United Kingdom committed to abide by this principle following the US-led Coalition’s occupation of Iraq in 2003.

Essentially any business activity in a territory depends on the use of natural resources in some form.  But such rules are particularly relevant to resource-based industries, and when fundamental aspects of the occupying power’s administration of the territory are inconsistent with international humanitarian law. Businesses need to ensure that any revenues paid to the occupying state for use or exploitation of resources are reserved for the protected population. One possible way to do this is for the occupying state to divert all financial benefits into an independently managed and audited fund, and make revenue and expenditures public. Companies should also publish all payments to governments under contractual or other agreements. If an occupying state does not set up such a fund, and companies pay taxes or other fees that flow into the state’s coffers and are then disbursed as part of its general budget, companies need to ensure that such funds are independently monitored and administered solely to benefit the protected population.

Case Study: Iraq

Soon after the United States-led coalition forces occupied Iraq in April 2003, the United Nations Security Council passed resolution 1483 establishing the Development Fund of Iraq (DFI) to administer proceeds from the sale of Iraq’s oil and other funds. The Coalition Provisional Authority (CPA), the administrative arm of the US-UK occupation forces, controlled the fund until it was transferred to the Interim Iraqi government in June 2004. The DFI is an instructive example of a mechanism put in place by an occupying power to comply with international law. The fund was structured to ensure the lawful exploitation of Iraq’s resources. Resolution 1483 mandated that it be held by the Central Bank of Iraq, independently audited by accountants approved by the International Advisory and Monitoring Board, and, most significantly, that the revenue collected be used solely to benefit of the people of Iraq.

However, in practice, audits revealed deficiencies in the fund’s internal control system, with large sums of money unaccounted for and unknown quantities of oil illegally exported. The first audit report was issued only in July 2004, a month after the CPA’s dissolution. It found that funds were transferred directly to Iraqi ministries to pay for reconstruction contracts and employee salaries with inadequate transparency or oversight. Its investigation revealed numerous cases with no evidence of contract monitoring in the files, contracts awarded without competition, and salary lists that included repetitive or ghost employees. Oil smuggling further deprived the fund of revenues, enabled in part by the absence of metering for crude oil production, the audit showed. American government auditors found that “there was no assurance” that US$8.8 billion in DFI funds were used for proper purposes and the US Defense Contract Audit Agency identified US$3.5 billion paid to American contractors between February 2003 and February 2006 in part using the DFI funds as “unacceptable for negotiating a reasonable contract price” or unsupported by sufficient documentation.

Occupying states are expected to actively ensure that revenues in a fund such as the DFI are not misused or wasted, and businesses have a responsibility to respect the rules regulating such funds. The absence of adequate controls in this case highlights the need for companies to conduct due diligence to ensure that their activities comply with international law and that they operate with maximum transparency. Companies that knowingly purchased oil smuggled from Iraq, for example, breached these responsibilities.

Case Study: Western Sahara

A map of the Western Sahara - photo courtesy of Human Rights Watch

A map of the Western Sahara – photo courtesy of Human Rights Watch

In 1963, the United Nations General Assembly classified Western Sahara, then a Spanish colony, as a non-self-governing territory. Morocco asserts pre-colonial sovereignty over the territory, but the International Court of Justice rejected this claim in an advisory opinion in October 1975. Shortly afterward, the Moroccan army entered Western Sahara and, on November 14, 1975, Spain signed an agreement transferring administrative control over most of the territory to Morocco.  The area of Western Sahara under Moroccan control has been under occupation ever since, giving the Sahrawi population living there the protections of international humanitarian law in addition to those governing non-self-governing territories.

Morocco strenuously contests the territory’s status, claiming sovereignty and applying Moroccan laws there. The United Nations has not formally referred to it as occupied since a General Assembly resolution in 1979, apparently for political reasons. (In March, UN Secretary-General Ban Ki-moon referred to Western Sahara as “occupied” during a visit to a refugee camp, but following Morocco’s protest, his spokesperson explained it as a “spontaneous, personal reaction,” not a formal position.) In any case, the United Nations has long recognized Western Sahara as a non-self-governing territory. Its former legal counsel has set out that this affords the population of such territories rights with respect to natural resources, which are similar to those that apply in occupied territories.

The main Western Sahara industries are natural resource based: fisheries, phosphate mining, and agriculture. Morocco is also trying to exploit the region’s energy potential and has invited foreign investment. There is little reliable, independent data on the Western Sahara economy. But a 2013 report by the Economic, Social, and Environmental Council (CESE), a Moroccan government-appointed body, provided some details on the “Southern Provinces,” which include Western Sahara and the Moroccan governorate of Guelmim. It says international investors make up 10 to 15 percent of investment in the region, which Morocco offers local and national tax exemptions to attract. Fisheries constitute 31 percent of all jobs and 17 percent of the GDP. Morocco exports around 2.5 million cubic meters of phosphate from the Bou Craa mine in Western Sahara, generating 2,150 jobs. The report does not include information on revenue from phosphate export, but, according to Western Sahara Resource Watch, an international pro-Sahrawi activist group, the estimated value in 2013 was US$330 million. Morocco has issued oil exploration licenses to a number of companies, although they have yet to find oil or gas in commercially viable quantities. It is also investing in alternative energy, with the construction of two solar plants and a wind farm under way, and others planned.

Under international law applicable to both occupied and non-self-governing territories, the economic benefits from these activities should derive to the Sahrawi population of Western Sahara. In 2002, the UN legal counsel, Hans Corell, considered the legality of oil exploration and exploitation in Western Sahara. Based on article 73 of the UN charter, which covers non-self-governing territories, as well as numerous United Nations Security Council and General Assembly resolutions, International Court of Justice decisions, and state practice, Corell concluded that administering powers of non-self-governing territories may not exploit natural resources “in disregard of the needs, interests and benefits of the people of that Territory.” He found that while the two oil exploration contracts he examined were not illegal because they did not involve production and removal of oil for sale and “no benefits have as of yet accrued,” further exploration or exploitation would be illegal if “against the interests and wishes of the people of Western Sahara.” This finding appears to make consent an additional requirement, placing natural resources in such territories under even more stringent limitations than in occupied territories. Parameters for obtaining consent have been fleshed out in other contexts, such as indigenous peoples’ rights, and generally require the consent of legitimate representatives answerable to the population.

Morocco insists that the exploitation does benefit Sahrawis, given the state investment in developing the region and the jobs created. For example, the CESE report, which lays out a “new development model” for “the Southern Provinces” and which the Moroccan parliament unanimously adopted, promises that “government revenues from the exploitation of these resources will be mostly reallocated to the development of the Southern Provinces.” Elsewhere, the report says that 70 percent of the 11.5 billion Moroccan dirhams (US$1.2 billion) generated from natural resources goes to the region. It also identifies specific sectors where government investment exceeds revenue, claiming for example, that Morocco invested over US$2 billion in the Bou Craa mine, which operated at a loss until 2008, and that “locals” hold more than half of the jobs in the industry.

Companies may not solely rely on Morocco’s claims and commitment in the CESE report or elsewhere to ensure that the local population benefits from revenues they provide to the Moroccan government. Such an arrangement lacks the transparency and accountability to allow the company to make such payments while respecting Sahrawi rights. Morocco retains full control and discretion over revenues generated from Western Sahara resources, and there is no way of monitoring or verifying its claims of revenue and expenditures, or holding Morocco accountable for failure to match expenditure with revenue. An additional problem is that Morocco does not recognize Western Sahara as a distinct territorial entity, making it unclear what amount of revenue would benefit Sahrawi residents. Moreover, the economic integration of the territory into Morocco and inclusion of Guelmim in the “Southern territories” undermines the territory’s distinct and temporary legal status.

The inadequacy of relying on Morocco to disburse these revenues in accordance with its international law requirements forms the basis of a recent European General Court decision annulling the application of the EU-Morocco trade agreement on agricultural and fishery products insofar as it applied to Western Sahara. In response to a suit by the Polisario Front, the Western Sahara liberation movement, the court held that the agreement was fatally flawed because it does not “guarantee an exploitation of the natural resources of Western Sahara that is beneficial to its inhabitants.” The European Union defended the agreement, saying it would not economically harm Sahrawis and that nothing prevented Morocco from reserving revenues for them. But the court was not persuaded. It found the European Union had to ensure the benefits of its economic activities were reserved for Sahrawis and not merely rely on Morocco to do so. The European Union has appealed the decision. Nevertheless, the court’s findings are in line with a growing body of law on natural resources in occupied and non-self-governing territories.

To comply with their responsibilities under the UN Guiding Principles, fishing and other companies paying royalties to the Moroccan government may not rely solely on the Moroccan government to disburse these payments in accordance with international law. They must ensure that any funds they pay are transparently collected, independently audited, and fully used for the benefit of Sahrawi residents of Western Sahara.

III. Settlers and Settlements

The Fourth Geneva convention prohibits an occupying power from transferring its nationals into the territory it occupies. An occupying power may violate this prohibition by providing financial or other incentives, infrastructure, or legal cover to its nationals who move into the occupied territory. Settlers may integrate themselves into existing cities and towns or live in segregated settlements. Businesses must conduct due diligence to ensure that their activities do not facilitate the transfer of settlers into the occupied territory, or contribute to the development or sustainability of settlements, including by financing the construction of settlements or related infrastructure, servicing or operating in settlements, paying taxes to settlement municipalities, or trading with businesses located there.

Case study: West Bank

Israel began building West bank settlements almost immediately after defeating Jordanian forces and occupying the territory in 1967. Today, more than a half million Israeli settlers live in 237 settlements (including in East Jerusalem). The International Court of Justice affirmed in a 2004 advisory opinion that “the Israeli settlements in the Occupied Palestinian Territory (including East Jerusalem) have been established in breach of international law.” Israel’s Supreme Court has declined to rule on the legality of settlements, but the Ministry of Foreign Affairs has claimed that settlements are legal because the Fourth Geneva Convention only prohibits forced transfer and because of the historic Jewish connection to the region. This position contradicts the plain language of the Convention, which refers to “forcible transfer” in the same article in other contexts, but in the case of this prohibition merely refers to transfer. Moreover, a historic religious connection to a land does not give a state the right to lay claim to a territory or otherwise defy international law.

Settlements are, for the most part, seamlessly assimilated into Israel’s infrastructure and economy, such that they appear almost indistinguishable from Israel. Businesses finance and develop homes and infrastructure, provide services such as waste collection, and connect settlers to Israeli telecommunication networks. A recent Human Rights Watch report, Occupation, Inc., examines settlement-related business activity in-depth and finds that such activity contributes to the sustainability of settlements, contravening businesses’ responsibilities under the UN Guiding Principles. For example, businesses involved in the settlement housing market, such as developers, banks, and real estate agents, play a central role in drawing new settlers and expanding the physical footprint of settlements. Such businesses also often help promote the fiction of settlements as a part of Israel. One such case is an international real estate franchise network that markets settlement properties on its website, in Hebrew and English, as located in Israel.

Many businesses are also located in settlements or settlement industrial zones, providing an important source of employment to settlers and tax revenue to settlement municipalities. In addition to commercial centers inside settlements, the West Bank has approximately 20 Israeli-administered industrial zones and 11 Israeli-administered quarries, and Israeli settlers oversee the cultivation of 9,300 hectares of agricultural land. Because many of these businesses export their goods outside of Israel, businesses around the world risk becoming implicated in these abuses through their supply chain.

A map of the Israeli-occupied West Bank - photo courtesy of Human Rights Watch

A map of the Israeli-occupied West Bank – photo courtesy of Human Rights Watch

The Israeli government defends settlement businesses in part by pointing to the jobs they provide to Palestinians. But this does not remedy businesses’ contribution to serious human rights and international humanitarian law violations. In addition to their inherent illegality, settlements are a central feature of Israeli policies that dispossess and discriminate against Palestinians. While the Israeli government provides a range of financial incentives to draw settlers and settlement businesses to the West Bank, it has virtually barred Palestinian development on the 60 percent of the West Bank under its administrative control. In 2014, the Israeli military issued a single construction permit to Palestinians in all of this area, and between 2000 and 2012 the rejection rate was more than 94 percent. Israeli courts also afford settlers and settlement businesses the full protection of Israeli civil law, whereas Palestinians are subject to Israeli military law.

Businesses operating in, financing, servicing or trading with settlements depend on and contribute to Israel’s unlawful confiscation of Palestinian land and other resources, and facilitate the functioning and growth of settlements. These businesses also benefit from these violations, as well as Israel’s discriminatory policies that privilege settlements at the expense of Palestinians. Because these violations are intrinsic to long-standing Israeli policies and practices in the West Bank that are not within businesses’ control to mitigate, to comply with their rightsresponsibilities under the UN Guiding Principles, businesses should not engage in settlement-related activities.

IV. Conclusion

In situations of occupation or their close analogues, such as non-self-governing territories, businesses must undertake specific due diligence to determine whether their operations may run afoul of international humanitarian and human rights law.  Businesses and investment funds should adopt due diligence and other policies to address the specific risks presented by such territories.

The first step is to determine whether a territory is occupied. Businesses should rely on a determination by the International Court of Justice or International Committee for the Red Cross when available or make their own determination based on specific criteria.

If involved in the extraction or exploitation of natural resources in an occupied or non-self-governing territory, a business must ensure that any fees it pays are used for the benefit of the protected population. Occupying and administering powers should establish transparent and independently managed and audited funds for this purpose. Where revenues are incorporated into the state’s general budget, businesses may not rely solely on the government to disburse revenues in accordance with international law. Rather, they must take steps to ensure an alternative mechanism is place that is transparent and independently audited.

Businesses must also determine whether activities contribute to the unauthorized transfer of an occupier’s population into occupied areas. Any activity that furthers this goal is impermissible, including operating in, financing, servicing, or trading with settlements established in violation of international law.

If the business activity does not run afoul of the above standards, then the business needs to carry out due diligence to identify any other negative human rights impacts and mitigate them to comply with the UN Guiding Principles. Operating in occupied territories imposes on them additional responsibilities. As in any other conflict-affected area, such business must operate with maximum transparency. This includes disclosing the nature of their operations in the occupied territory, the value of any contracts awarded and the amount of any royalties paid, and by accurately labeling goods originating from and properties located in the territory, in addition to mitigating specific human rights risks such as protecting workers’ rights.

About Author

Sarah Saadoun

Sarah Saadoun researches the human rights impacts of businesses for Human Rights Watch. She has a B.A. from Queens College and an M.A. in comparative literature from Hebrew University. Ms. Saadoun recieved her J.D. from Columbia Law School.

1 Comment

  1. Sorry but the Western Sahara territory isn’t occupied. Western Saharawi are sovereign south Morocco since 1975. They deal with local affairs. They deal with international companies to make progress for the local community. Anything else is about the usual propaganda of algeria agents and corrupt minds/NGOs sponsored by algeria.
    Thanks