First OECD Complaint Filed Against a European Company for its Activities in Iran

First OECD Complaint Filed Against a European Company for its Activities in Iran

When companies consider the risks associated with doing business in Iran they largely focus on sanctions. Yet this approach misses the increasing normative and regulatory requirements that companies also manage the social and environmental impacts of their activities. While the importance of managing these risks holds for any country, it is particularly salient in the Iranian context due to the scrutiny and politicised climate surrounding investment in the Islamic Republic.

The filing of the first complaint against a European company under the OECD Guidelines for Multinational Enterprises (the OECD Guidelines) for its business activities in Iran is a warning for what might lie ahead. Without prejudging on the merits of the complaint, this case is important for any company looking at doing business in Iran because it highlights a type of regulatory policy businesses are mostly unaware of, and because of its implications on the broader political environment to continue an economic opening towards Iran.

The Complaint

On 13 September 2017, three civil society organisations filed a complaint with the Italian Government against Italtel Group S.p.A, a major Italian telecom company regarding its business activities in Iran.

The complainants argue that the technologies and services offered by Italtel to its Iranian partner, the Telecommunications Company of Iran (TCI), breach multiple provisions of the OECD Guidelines by contributing to internet censorship and other rights violations in Iran and help the Iranian authorities, including the Islamic Revolutionary Guard Corps, to suppress political dissent and civil liberties in the country and in cyberspace. The complainants are asking the Italian government whether the company’s actions are consistent with the Guidelines and more importantly are calling for an immediate moratorium on current negotiations and business engagements between Italtel and TCI until the alleged breaches to the Guidelines are addressed.

The OECD Guidelines 

The OECD Guidelines are recommendations addressed by Governments to multinational enterprises operating in or from one of the 48 adhering countries—that includes the 35 OECD countries and 13 additional countries ranging from Argentina to Kazakhstan to Ukraine. The Guidelines provide non-binding principles for responsible business conduct in areas such as employment and industrial relations, human rights, environment, information disclosure, combating bribery, consumer interests, human rights, science and technology, competition and taxation. Their impact has been felt the most extensively in the areas of human rights and labour relations.

The Guidelines, in line with the other key reference instruments on responsible business practices such as the United Nations Guiding Principles on business and human rights and the International Labour Organization’s Core Labour Standards, make clear that responsible business is not charity or philanthropy but about identifying, managing and remediating adverse impacts on social and environmental issues.

As the Guidelines are not legally binding, one might conclude they can easily be ignored. But the most unique feature of the Guidelines is that they require governments to set up “National Contact Points” whose role is to promote the Guidelines and, more importantly, to receive and handle complaints against alleged non-observance of the Guidelines. These complaints are not judicial cases in the classical sense. NCPs offer conciliation and mediation to facilitate consensual solutions to the alleged violation of the Guidelines. Again, it might be tempting to ignore NCPs due to their apparent lack of judicial standing. However, these cases increasingly lead to concrete consequences for companies found in non-compliance of the Guidelines.

As the OECD's own reports show, findings and recommendations of NCPs are increasingly being used by investors in their assessment of companies’ performances, including in decisions of divestment. Governments are increasingly looking at NCP findings and recommendations when and whether extending their support to companies. The most advanced example is probably Canada, which can withdraw its state support for companies in case of an established violation of the Guidelines or a failure to participate in good faith in the NCP process. More broadly, OECD export credit agencies have coordinated their policies to recommend that agencies take into account NCP statements when deciding whether to provide financial support. Individual NCP cases have also resulted in significant consequences for companies such as loss of future contracts.

NCPs have handled over 400 complaints, addressing impacts from business operations in over 100 countries and territories since 2000. Since 2011 there has been a steady increase in recourse to the NCPs, demonstrating growing confidence in the system. This, combined with the breadth of issues covered by the Guidelines and the relative ease of access to the NCP probably explain why civil society organizations decided to use the OECD system. The Italian case may well be a clear signal that NCPs will likely be increasingly used as a tool of strategic (quasi) litigation in the context of business activities in Iran.

Maybe Italtel activities do not amount to a breach of the Guidelines. Maybe they do, but unwillingly or unwittingly. The issues raised by the complaint are complex. Phone and ICT companies are increasingly forced to assess the balance between respecting basic human rights such as freedom of expression and privacy with government requests based on public security. Vodafone came under fire when it was forced to send out pro-government messages and shut down its network by the Egyptian government during the 2011 uprising. BlackBerry, when it was still a thing, faced a ban in India for refusing to provide access to customers' emails. Google left China after its servers were attacked to access information about activists and Apple recently opposed the US Government over users’ privacy.

In any case, it is fully in the interest of the company to use the opportunity of the NCP case to clarify the situation. NCPs focus on problem solving. It represents in the end a relatively easy way to reach a consensual and non-adversarial solution to its alleged challenges.

Responsible Economic Relations

The importance of the OECD Guidelines can also be felt at a very different level highlighted in a recent feature on Bourse & Bazaar. The feature discussed the question of whether Iran is a “good country” as essential for business leaders and governments as they try to justify market entry plans to board members, shareholders, and their national constituencies while critics of the Iran nuclear deal claims more forcefully than ever that investing in Iran will further enable the “bad behavior” of the Iranian state

This good/bad approach might seem simplistic but it reflects a very real dimension of the broader political environment surrounding companies and governments developing business and economic ties with Iran. They must be mindful of the heightened impact of negative headlines alleging that European businesses are harming people and the environment in the country just like irresponsible foreign investors risk compromising internal support in Iran for opening economic ties.

In this context, responsible business offers an additional tool to demonstrate that investments in Iran are “good” when they respect people and the environment. Reinforcing this perception, based on actual performances, will be crucial to strengthening broad acceptance of economic and business relations with Iran. Said differently, it is in the interest of investors, companies as well as governments in Europe and Iran to respect, support and implement concretely and convincingly the OECD Guidelines and more broadly responsible business practices in Iran.



Photo Credit: Wikicommons

Governor of Sweden’s Central Bank Visits Iran for Technical Dialogue

Governor of Sweden’s Central Bank Visits Iran for Technical Dialogue

Iran Financing at Austria's Oberbank 'On Hold' Because of Trump

Iran Financing at Austria's Oberbank 'On Hold' Because of Trump