Hereunder is a summary of the main findings and recommendations of the study.

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1 Executive summary Legal study «Legal remedies in the face of human rights violations and environmental damage committed by subsidiaries of Swiss corporations, by François Membrez, 1 lawyer, Geneva How can multinational companies be compelled to respect human rights and environmental standards worldwide? According to experience self-regulation is not enough to induce corporate social responsibility. This shortcoming should therefore be corrected by means of binding legal rules. Being the cradle of human rights and the seat of numerous multinational corporations, Switzerland can play a pioneering role in this regard. Two basic questions must be settled while debating possible legal rules: how can companies headquartered in Switzerland be compelled to answer for human rights violations and environmental damage related to their activities abroad, more specifically, committed through their subsidiaries, subcontractors and suppliers? how can victims of these violations be given access to Swiss courts and be enabled to obtain justice on an equitable basis under Swiss law and not just under the law of their country, which may not favour them? The Swiss Campaign for Corporate Justice commissioned Geneva-based lawyer Francois Membrez to analyse Swiss law in the light of these questions and to put forward concrete proposals for closing the gaps. His general conclusion is unequivocal: Swiss law contains no provisions requiring enterprises and their managers to ensure respect for human rights and environmental standards while doing business abroad. It does not allow for a parent company to be held liable for human rights and environmental violations perpetrated by its subsidiaries, subcontractors and suppliers. Nor does it offer the possibility for victims to obtain redress in an efficient manner. Legal amendments are therefore needed so as to remedy these shortcomings. Hereunder is a summary of the main findings and recommendations of the study. 1. Fundamental rights and business Human rights are amongst the universal and inalienable fundamental rights of every person. In Switzerland, the fundamental rights are guaranteed by several international conventions (UN covenants, the European Convention on Human Rights) as well as by the federal constitution and the cantonal constitutions. They are protected by and directed against the State. 1 Study in French commissioned by the "Corporate Justice" campaign, completed in February 2012, with the collaboration of Emilie CONTI and Franco SACCONE, both lawyers.

2 Nevertheless, Article 35 of the Federal Constitution introduced during its complete revision in 1999 states that the "fundamental rights, where appropriate, apply to relationships among private persons". This paragraph 3 arose from the finding that fundamental rights are often jeopardized not only by acts of the State, but also by the behaviour of persons natural persons and legal entities in a position of power, such as big corporations. Two things arise from this constitutional amendment. First, corporations are recognized as potential perpetrators of human rights violations. Second, the holders of constituent power (the Swiss people and cantons) have mandated the authorities to enforce the fundamental rights in relations among private persons, including between legal entities and natural persons. This mandate corresponds, de facto, to two of the three pillars of the "Protect, respect and remedy" framework developed by John Ruggie, former UN Special Representative on Business and Human Rights: the obligation of States to protect people from human rights violations by third parties (including companies) and the need for victims to have better access to redress. Yet there is no denying that this mandate has still not been realized to date. The legal amendments suggested in this study are therefore proposals aimed at getting the Swiss legislator to fulfil the mandate enshrined in the Constitution. They are also a means through which Switzerland can implement the frame of reference and the guiding principles drawn up by John Ruggie and adopted by the Human Rights Council in Liability of parent companies for the actions of their subsidiaries and suppliers 2.1. Civil law Civil law governs the private relations among persons. It enables claimants to obtain redress for damage caused by natural persons or legal entities. Swiss civil law contains several obstacles to implementing corporate liability for human rights violations and environmental damage: 1. In his "Protect, respect, remedy" framework, John Ruggie stresses that corporations the second pillar have a responsibility to respect all human rights everywhere in the world. They should therefore introduce human rights due diligence processes covering the entire value chain, including subcontractors and suppliers. Yet under Swiss law today, board members of a limited liability company have no obligation whatsoever to ensure respect for human rights and the environment in the course of their activities. Their duty of care merely obliges them to faithfully protect the interests of the company (Article 717, para. 1, Code of Obligations). 2. A company is responsible for unlawful acts 2 committed by its managers or by its empowered representatives in the course of their activities, whether in Switzerland or abroad (Article 55 Civil Code and Article 722 Code of Obligations). The aggrieved persons may therefore act directly against the company and claim damages from it. If it is a group of companies, however, the parent company and its subsidiary are considered two separate legal entities (corporate veil), each of them having its own limited liability. Therefore, the parent company cannot be held accountable for unlawful acts committed by a subsidiary (even if it s 100%-owned), nor for those of a subcontractor or supplier controlled by it. The situation is the same for breaches of contract. 2 Swiss law considers it unlawful to create a dangerous state of affairs, to violate an absolute right of a private person, to breach a standard of behaviour whether written or tacit, under private, public or criminal law. Most human rights violations are unlawful acts under the law. 2

3 3. The subsidiary, subcontractor and the supplier bear sole liability for all its acts. The exceptions (abuse of law, liability based on trust) to this rule of legal duality are rare indeed and are interpreted very narrowly by the Swiss Supreme Court. In other words, Swiss law does not afford victims the possibility to seek redress from the parent company of a multinational group of companies. To change this, two provisions should be added to the law: Board members must take all necessary steps to make sure that human rights and the environment are respected by the company, including its subsidiaries, subcontractors and suppliers (duty of care; addition of a third paragraph to Article 717 of the Code of Obligations); The parent company is jointly and severally liable for the unlawful activities and contractual obligations of all group companies, as well as for the unlawful activities and contractual obligations of its subcontractors and suppliers (direct liability; new article 722a CO). To implement joint and several liability on the part of the parent company (domiciled in Switzerland) for the activities of its subsidiaries (abroad), provisions must also be introduced for Swiss law to apply. This is not currently the case. Indeed, when a company is party to a suit, the applicable law is determined on the basis of its place of incorporation. Specifically, in a dispute involving a group of companies, the prevailing principle is that of legal duality between the parent company and its subsidiary abroad; the applicable law is therefore that of the country in which the subsidiary is based, irrespective of whether it is the subsidiary or parent company that is being sued. Given the joint and several liability that would be introduced into Swiss law, a legal amendment should be proposed so that: Swiss law may be applied in the case of a complaint against a parent company domiciled in Switzerland for any illegal acts committed by and for the contractual obligations of its subsidiaries, subcontractors and suppliers (addition of a section j to Art. 155 LDIP). 3

4 2.2. Criminal law Criminal law covers all the rules of law which, by means of penalties, punish breaches of the social order and all kind of behaviour considered a crime, an offence or a misdemeanour. Unlike French criminal law, for example, Swiss criminal law only applies basically to natural persons. In principle, a legal entity (company) cannot be held liable for criminal offences. Yet there is one exception to this rule, a provision that applies not only to individuals but also to companies: Article 102 envisages two things. On the one hand, it stipulates the exclusive criminal liability of the company when, for lack of organisation, it cannot be determined which individual is responsible for a crime or offences committed within it. On the other hand, it establishes the joint criminal liability of the company and the individual for some economic crimes: participation in a criminal organization, financing terrorism, money laundering, and various forms of corruption. The company as such may be subject to criminal prosecution if it has failed to take all reasonable organizational measures necessary to prevent such offences. According to the doctrine, Article 102 would be enough to hold the parent company liable for offences committed within the branches and subsidiaries of its group. There are very limited possibilities for applying it, however. First, the maximum fine (5 million francs) incurred by an incriminated company is less than the penalties foreseen abroad and too low to be dissuasive, especially to transnational corporations. Second, the Article addresses only a limited number of offences that do not cover human rights violations and damage to the environment. Moreover, given the procedural obstacles, sentences based on this provision so far have been extremely rare. One example was the case of Alstom Network Suisse that was sentenced for bribery of public officials abroad (November 2011). It would therefore be desirable to: Increase the maximum fine from 5 to 50 million francs (amendment to paragraph 1); extend the list of offences for which a company may be criminally prosecuted to include genocide and crimes against humanity, war crimes, endangering the life or health of others, homicide, murder or assassination, serious or simple bodily harm or harm caused by negligence, damage to property, and contamination of drinking water (addition of a third paragraph to Art. 102 of the Criminal Code, converting current paragraphs 3 and 4 to 4 and 5). 3. Competence of the Courts 3.1. Civil law The Federal Act on Private International Law ("PILA") governs the competence of the judicial authorities in the absence of international treaties. It regulates the process of determining the country in which a dispute may be tried (jurisdiction) and the respective applicable law when an illegal act is committed outside of Switzerland (extraterritoriality). This dual issue is important for two reasons. First, numerous activities of Swiss firms have been relocated abroad. Second, it is in developing countries with weak governance that the most serious and frequent human rights and environmental violations occur. It is therefore crucial for judicial authorities to be able to rule on these violations when Swiss companies are involved, whether directly or through their subsidiaries, subcontractors and suppliers. Depending on the country concerned, local law - particularly regarding compensation - may be unfavourable to victims. It is therefore important to be able to apply Swiss law in cases of disputes involving human rights and the environment. 4

5 Two questions arise in this context: 1. Can a complaint be filed in Swiss courts against a company headquartered in Switzerland if the illegal act has been committed abroad? The answer is yes, as long as the perpetrator is not a foreign subsidiary but a company domiciled in Switzerland. Switzerland is unacquainted with the principle of the forum non conveniens, an institution peculiar to Anglo-Saxon law and common law countries. This means that Swiss courts cannot not relinquish jurisdiction or decline to exercise their jurisdiction simply because the dispute took place abroad or because the plaintiff is able to bring the case before a competent court abroad. 2. How is the domicile of a company established? This is not a trivial question. Given the complex structures of holding companies that locate their statutory seat in tax havens, it has often been difficult to determine a company's domicile. Swiss legislation (Act on Private International Law and Civil Procedure Code) continues to consider a company s domicile to be the location of the company's registered office. It has not been harmonized with the Lugano Convention. This international treaty - to which Switzerland is a party - was revised in 2007 and took effect on 1 January 2011; it stipulates that companies and legal entities are domiciled not only where they have their statutory seat, but also their central administration or principal place of business (Art. 60, para. 1). Swiss courts should therefore consider themselves competent not only if the company being sued is headquartered in Switzerland, but also if its decision-making centre and/or its main business are located there. This competence - in virtue of the fact that the parent and its subsidiary are two separate legal entities - does not cover the activities of subsidiaries abroad, unless it can be demonstrated that they are administrated from Switzerland. This highly unsatisfactory situation calls for several changes to the law in order to: harmonise with the Lugano Convention the notion of the domicile of legal persons (companies and trusts) as defined in the Act on Private International Law (Art. 21) and the Civil Procedure Code (Art. 10, para. 1, letter b); make Swiss courts competent to judge unlawful acts by any company in the group - even located outside Switzerland - whose parent company is domiciled in Switzerland (addition of a third paragraph to Art. 129 "PILA") Criminal law Can the parent company be held criminally liable in Switzerland for acts committed by its branches or subsidiaries abroad? The prevailing principle is that of territoriality: the Criminal Code is applicable to any individual who commits a crime or offence in Switzerland (Art. 3). It also applies if the victim is Swiss or resident in Switzerland. The Criminal Code also applies to crimes and offences committed abroad and tried under an international agreement, provided that the act is also punishable in the State where it was committed and that the perpetrator is in Switzerland (Art. 6). In addition, there is universal jurisdiction for acts of genocide and crimes against humanity as well as for war crimes. In virtue of this provision, the Swiss authorities may prosecute the perpetrator if the latter is present in Switzerland, unless extradition to an international tribunal such as the International Criminal Court is mandatory. If a company with its headquarters, its management or its core business in Switzerland turns out to be an accomplice to such acts committed abroad, its managers may be prosecuted in Switzerland if they are identified, or failing that, the company itself. 5

6 4. Access to justice for victims The question of access to justice for victims is bound up with the rules of procedure. Here again, Swiss law is very restrictive Civil Procedure Code Under civil procedure, several victims who have suffered similar damages caused by one and the same company do not have the possibility to file a collective action. The Federal Government has come out repeatedly against the introduction of collective action into the Swiss law, citing negative experiences with American-style class actions, as well as fear of abuse and of organizational problems given the complexity of the procedure. In its explanatory note regarding the Swiss Civil Procedure Code (2006), it put forward that the classic tools available were sufficient. However, the recent UBS case revealed significant gaps - recognized by the Federal Council - regarding the legal protection of plaintiffs in Switzerland. It is now widely recognized that Swiss civil procedure law falls short when it comes to protection of collective interests. Moreover, the "discovery" procedure is alien to Swiss law. Specifically, the law does not require a company to provide information or produce documents that could be useful in settling a dispute. An individual litigating against a company will therefore have to prove the company's guilt without having access to key documents. This is obviously not a level playing field. The judge, however, will have only limited scope to restore the balance and reduce the disproportion in resources and power between the parties. The new Swiss Civil Procedure Code that took effect on 1 January 2011 even represents a huge step backwards in that it facilitates the right of parties to refuse to cooperate in producing evidence. To overcome these procedural shortcomings, and taking into account the reluctance of the Federal Council to consider American-style class action, it is proposed to: grant associations of national or regional significance the possibility to take action to claim payment of damages on behalf of groups of people whose interests they are empowered to defend (new Art. 89a in the Civil Procedure Code); improve access to evidence. The judge must be able to order the party in possession of useful documents to produce them, even if the burden of proof does not lie with that party. In the event of refusal to cooperate without good cause, the fact alleged by the opposing party will be considered proven (new wording for Arts. 162 to 164 of the Civil Procedure Code) Criminal Procedure Code Criminal prosecution is the task of the Public Prosecutor, who is required by law to act ex officio as soon as there are suspicions of an offence. Experience shows, however, that prosecutors are not always willing to act, especially in delicate situations such as those involving human rights violations at an international level. When the Public Prosecutor refuses to act, it is the claimant who has to take the matter to court, and this is not always possible. Moreover, there are offences for which there is no directly aggrieved party. This is especially true in cases of corruption or money laundering, where it is hard to substantiate the existence of injury. Given that bribery of public officials is a decisive factor in the violation of the fundamental rights of many peoples, it is inadmissible for the decision on whether or not to initiate criminal proceedings in Switzerland to be left to the discretion of the Public Prosecutor - without any possibility of appeal. 6

7 It is therefore necessary to: allow national associations to enforce the rights of victims in the prosecution of certain criminal offences such as: racial discrimination, genocide and crimes against humanity, war crimes, misconduct in public office, corruption, money laundering, contamination of drinking water, damage to property (new Art. 121bis of the Criminal Procedure Code and addition of a letter d. to Art. 104 para. 1 of the Criminal Procedure Code). Such a reform would not really be a novelty in Swiss law. Associations do already have standing to bring criminal suits in relation to unfair competition. Incidentally, under French law, the Criminal Procedure Code allows associations to represent aggrieved parties in many respects. 5. Environmental law In Switzerland, the protection of nature has fallen largely under public law. This law governs relations between the State and its citizens, whilst private law regulates relations amongst private persons themselves - natural persons and legal entities. Several federal laws, supplemented by a number of ordinances from the Federal Council, protect the environment, water, forests and the landscape. Their effective implementation is largely dependent on the will of the authorities. Yet it is acknowledged today that many instances of environmental damage - caused, inter alia, by companies are de facto matters of private law. Private law is thus crucial to the enhanced protection of nature. It must allow for broader oversight and for the settlement of disputes between enterprises and natural persons. Growing numbers of associations and individuals are keen to have channels for legal action in the event of environmental damage. Several international treaties recognize the importance of private law in environmental matters. They accept the right of the individual to live in a healthy environment and demand that States make legal instruments available to private individuals. Such is the case, for example, of the Aarhus Convention on Access to Information, Public Participation in Decision-Making and Access to Justice in Environmental Matters. For the time being, Switzerland has not ratified this treaty and is therefore not complying with the obligations deriving from it. 7

8 Two main problems arise from this situation. On the one hand, in the case of damage to the environment, associations have no access to justice, as they currently have no standing under the law. On the other hand, in private environmental law, civil liability actions are hampered by a definition of damage that artificially limits the scope of protection to economic interests only. The damages that may be claimed do not cover the restoration of the environmental degradation. These shortcomings should therefore be remedied by adding an Art. 59e to Title 4 of the Environmental Protection Act, whereby: an environmental association may launch civil liability proceedings for environmental damage in Switzerland and abroad; an environmental association may seek the payment of damages to an individual or a community that has suffered harm as a result of environmental degradation; the damages awarded by the court must cover the cost of restoring the environment that has been degraded. l info@rechtohnegrenzen.ch Recht ohne Grenzen l c/o Alliance Sud l Monbijoustrasse 31 l P. O. Box l 3001 Berne l