A secret court system that allows fossil fuel investors to sue governments for vast amounts of money has been accused of institutional bias, self-regulation issues and perceived conflicts of interest, as the drumbeat of EU countries leaving threatens to turn into a samba march.
On Wednesday, the EU will be meeting to discuss reform of the energy charter treaty (ECT) but at the end of last week, Germany became the latest European country to announce its intention to leave the treaty. Slovenia exited earlier in the week, after similar moves by France, the Netherlands, Spain and Poland. The UK is now one of the last large economies to remain in the ECT.
The ECT’s investment arbitration courts were set up in 1998 to protect energy firms operating in former Soviet Union countries from government expropriation and regulation. They gave the companies the right to seek compensation if legislation or policies were enacted that could be seen as hostile, using the investor-state dispute mechanism that stirred up much public controversy during the negotiation of the Transatlantic Trade and Investment Partnership (TTIP).
The treaty has since been signed by more than 52 countries across Europe and central Asia, with oil, gas and coal firms being awarded more than $100bn by the ECT tribunals. The UK oil firm Rockhopper was recently awarded $190m in a case it brought against Italy, which is contesting the decision. As countries have sought to curb their emissions in line with the Paris climate agreement after 2015, the number of claims being brought has exploded. Renewables companies have also brought a number of cases.
As its signatories prepare for a crunch meeting in Mongolia on 22 November, the ECT is facing what one critic has called a “crisis of legitimacy” for several reasons, including how the tribunals are composed, feeding growing concerns over perceived conflicts of interest.
The ECT’s tribunals can proceed under several systems, but the World Bank’s International Centre for Settlement of International Disputes (ICSID) rules are most commonly used. The system is different to most national legal systems, which employ a publicly appointed and independent judiciary. ICSID’s courts work with independent arbitrators appointed by the parties, but who may work in different roles for employers with conflicting interests within the system.
Each case is decided by a panel of three arbitrators: one appointed by the state, one by the investor, and a third who acts as president or chair and is selected by the other two arbitrators. The case is then argued before the panel by lawyers acting as counsel for each party. Cases are held behind closed doors, and there is no obligation to release the outcome. A choice of arbitrator can be challenged if a party disagrees, but there is no guarantee it will succeed.
“Double hatting” occurs when a lawyer takes more than one role across different cases – for example – sometimes acting as counsel for an investor, other times acting as a president, who is supposed to adjudicate independently.
An analysis of the cases brought so far under the ECT – carried out by the Guardian, the Transnational Institute and Powershift – has found that in a significant number of cases, an individual who had previously acted as an arbitrator appointed by an investor in one case was appointed to act as counsel (or advocate) for a party in another similar case.
Without full disclosure – which is one of the main reasons to challenge an arbitrator – there can be no guarantee that arbitrators have not had links to the law firm (or lawyers) acting as counsel in cases they are adjudicating, or that they have not acted as counsel in similar cases, leading to the risk of them prejudging the issues in play. Indeed, their reputations in this regard may lead some clients to seek them out.
Of the 191 arbitrators that have been nominated to sit in ECT hearings, just 37 elite lawyers – about 18% of the pool – have heard half of all the ECT’s cases. Seventeen members of this group have acted in the role of arbitrator and legal counsel, in the ECT and other investment courts.
Sixteen of the 17 arbitrators sat in fossil fuel cases – most were chosen by investors – and only three of the 37 have not sat in a fossil fuel-related arbitration panel.
Of the cases in which “double hatters” took part as arbitrators, 58% were won by investors, according to the analysis.
Under ICSID rules, arbitrators should be “persons of high moral character and recognised competence in the fields of law, commerce, industry or finance, who may be relied on to exercise independent judgment”.
However, these rules are self-regulated by the arbitrators – critics say they are unenforceable – and the successful removal of arbitrators is rare. In Spain, for example, just one proposed ECT arbitrator has been blocked, out of 19 challenges.
Many arbitrators believe they can separate the different roles they may play in different cases.
Klaus Sachs, an ECT-focused arbitrator based in Munich, said that “as in every profession, excellence is a way to success and among those arbitrators who are in high demand, you have very qualified people. They are very good lawyers.”
There was, he added, “a lot of new talent coming in and so the market is changing as a new generation enters the field”.
However, critics argue this is a recent and overstated trend. They say that allowing parties to appoint arbitrators who have acted as counsel in similar cases opens up what Lucía Bárcena, of the Transnational Institute, called “a Pandora’s box of conflicts of interest”.
It has also caused “long-running and heated debate within the international commercial arbitration community”, according to a 2017 study. In it, the international legal expert Philippe Sandsasked whether a lawyer could impartially wear the hat of an arbitrator in the morning and counsel in the afternoon. “Speaking for myself, I find it difficult to imagine that I could do so,” he said.
George Kahale III, the chair and partner of the law firm Curtis, Mallet-Prevost, Colt & Mosle, which represents states in international arbitration cases, said the small number of arbitrators available to states also caused “a clear structural bias” toward investors in the ECT’s courts.
“The pool of arbitration candidates who I would consider to be ‘straight shooters’ … is very, very small, whereas the pool of investor-friendly arbitrators is as wide as the Pacific Ocean,” he said, over a video call from New York.
Kahale, an ECT veteran, said he had sat in many ISDS cases where he knew what the outcome of a tribunal would be as soon as he saw its composition.
“There’s virtually no chance of getting someone from that small pool [of arbitrators] that states would normally consider appointing,” he said.
Defenders of the system say the pool for defending states is filled with “very prominent and good arbitrators”, and it is “relatively large”, albeit smaller than that for investors.
“When it comes to the chair, obviously it becomes more complicated,” Sachs said. “But I don’t think, when a party learns that I’ve been appointed chair of a case, that they know what the outcome will be, and I feel that is true for a large majority of the real professional arbitrators.”
Sachs stressed that challenging arbitrators could be a lawyerly tactic and that “in most cases, the decisions are well-reasoned and balanced”. But he accepted that arbitrators were “not often” removed under challenge.
Kahale said that factoring in all of this – and what he called “a virtual explosion” in the size of damages claims – the result was “a crisis of legitimacy within the [ISDS] system”. That view is shared by Sands.
Laurence Tubiana, one of the architects of the Paris deal and the chief executive of the European Climate Foundation, said the analysis “clearly shows that the energy charter treaty’s court system reeks of potential conflicts of interests which favour fossil fuel investors and threaten the Paris climate agreement. Once again, the oil and gas industry has found ways to control the game.”
Within a system that could shower fossil fuel investors with more than a trillion dollars of compensation pay-offs by 2050, there are widespread fears the ECT could spark what the UN Intergovernmental Panel on Climate Change (IPCC) called “regulatory chill” at just the moment new climate laws are needed.
“The energy charter treaty is not consistent with the Paris agreement,” said Patrice Dreiski, a former ECT executive. “The main goal of the ECT is to promote and protect fossil fuels investment, which is not at all the goal of the Paris agreement.”
To date, investors have won 64% of concluded ECT cases, three-quarters of which covered the fossil fuel sector, according to the analysis.
The data was compiled mostly by the Transnational Institute from the UN Conference on Trade and Development database, the ECT’s own overview of cases, the ICSID and Permanent Court of Arbitration databases that administer disputes, public tribunal documents published on italaw.com and specialised media.
The impression of a legal web geared to structurally benefit fossil fuel investors may even be reflected within the ECT secretariat itself, which promotes ECT conferences, oversees treaty rules, and provides institutional support to achieve the ECT’s objectives.
Almost three-quarters (72%) of experts on the secretariat’s industry advisory panel – which provides policy advice to the body with “a particular focus on risk mitigation and improvement of the business climate” – also work for fossil fuel companies or their financial beneficiaries.
Guy Lentz, the secretary general of the ECT secretariat and a former Shell executive, accepted that the panel was “structurally biased”, but added: “We want many more renewable energy companies. We are working really hard on that, but it takes time.”
Fabian Flues, a trade and investment adviser for the Berlin-based non-profit Powershift, said the analysis showed the ECT was “dominated by interests with a stake in maintaining the highly lucrative system of investment arbitration. It enables them to rake in huge fees, often coming out of taxpayers’ pockets.”
However, disquiet at the treaty’s threat to timely climate action has now spurred Brussels to propose phasing out the ECT’s writ within the EU’s border, even as the bloc’s own members queue up to jettison the pact.
It appears, however, that the UK will not be joining that queue. A government spokesperson said only that signatories “will decide whether to adopt the modernised energy charter treaty at the energy charter conference on 22 November”.
As child labor law violations have been on the rise in the US, some state legislators are pushing for changes at state and federal levels to roll back protections in what some see as a threat to return child labor to the country.
The laws aim to expand permissible work hours, broaden the types of jobs young workers are permitted to do, and shield employers from liability for injuries, illnesses or workplace fatalities involving very young workers.
Child labor law violations have increased in the US, with a 37% increase in fiscal year 2022, including 688 children working in hazardous conditions, with the number likely much higher as the recorded violations stem from what was found during labor inspections.
The Department of Labor issued a press release in July 2022 noting child labor violations and investigations have increased since 2015.
Amid these increases in child labor violations, legislative efforts have been introduced in several states to roll back child labor protections.
In Iowa, Republican legislators introduced a bill in January to expand the types of work 14- and 15-year-olds would be permitted to do as part of approved training programs, extend allowable work hours, and exempt employers from liability if these young workers are sickened, injured or killed on the job.
“It’s just crazy to me that we are re-litigating a lot of things that seem to have been settled 100, 120 or 140 years ago,” said Charlie Wishman, president of the Iowa AFL-CIO, which is opposing the bill.
Wishman added: “All of these protections have been put in place for a reason. Child labor law is there to make sure that kids are working in age-appropriate work activities or occupations that are appropriate for their age. We think this is a rewrite of our child labor laws in Iowa that are going way, way, way too far and has the potential to put kids in dangerous situations.”
The bill would permit the director of Iowa workforce development or the Iowa department of education to grant exceptions from any provision that restricts the types of jobs 14- and 15-year-olds can do if the work is classified as part of a work-based learning program and also strips workers’ compensation rights for these workers.
The protections being sought for companies are of particular concern to labor activists.
“In the Iowa legislation, one of the provisions is to exempt employers from civil liability due to the company’s negligence. It is astounding that they would have the gall to knowingly acknowledge that more young people will be harmed, but focus on exempting businesses,” said Marcy Goldstein-Gelb, co-executive director of the National Council for Occupational Safety and Health.
Goldstein-Gelb explained that throughout her career she has worked with families and co-workers of young workers who have died on the job, oftentimes in violation of child labor laws that industry groups have fought to repeal, such as in a case where a 16-year-old in Massachusetts was killed in 2000 while operating a golf cart on the job.
Young workers have much higher rates of non-fatal injuries on the job and the highest rates of injuries that require emergency department attention, Goldstein-Gelb noted. She argued that due to the vulnerability and inexperience of young workers, data on these workers is likely an undercount due to fears or barriers in being able to speak up and report dangerous situations or child labor law violations.
“I think there is this myth that you need to put young people in any possible job because there are openings. I think we are moving into a new age where we need to recognize that workers of all ages are seeking to earn a sustainable living and not put themselves in harm’s way,” added Goldstein-Gelb. “That’s why there are workers taking actions around the country and that needs to be supported rather than just saying we’re going to find people who have no alternative, the most vulnerable, and put them in jobs that are completely inappropriate.”
Other states are currently or have pushed similar legislation to roll back child labor protections.
In Ohio, legislators reintroduced a bipartisan bill this year to extend working hours for 14- and 15-year-olds with permission from a parent or legal guardian, and called on Congress to adopt the same rollbacks at the federal level.
Legislators in Minnesota introduced a bill in January 2023 to extend work hours for 14- and 15-year-olds.
Republicans in Wisconsin passed a bill that was vetoed by Governor Tony Evers in this month that would have expanded work hours for 14- and 15-year-olds. The New Jersey governor, Phil Murphy, signed a similar law in 2022 that expanded work hours for 14- and 15-year-olds to work longer hours during summer months and on holidays and expanded allowable work hours for 16- and 17-year-olds.
At the federal level, Republican congressman Dave Joyce of Ohio drafted a bill in 2022 to expand working hours for 14- and 15-year-olds during periods when school is in session.
Advocates for legislative efforts to roll back child labor regulations have cited labor shortages, particularly in industries that rely on young workers, and have been strongly backed by the National Federation of Independent Business.
“We think these laws are really ill advised and just asking kids to have negative educational impacts,” said Reid Maki, director of child labor issues and coordinator at the Child Labor Coalition, who argued it took significant efforts to enact child labor laws over 100 years ago, when there were thousands of children working long hours in unsafe jobs such as factories and mines.
Maki added: “Now there are states that want to go back toward that direction to deal with labor shortages by using teens, even to the extent of placing them in dangerous work environments – [it] doesn’t make sense. It’s disregarding their welfare.”
He argued that child labor laws in the US need to be strengthened and updated, including closing existing loopholes that permit young workers, some as young as 12 years old, to work unlimited hours in many jobs in the agriculture industry with parental permission when school is not in session.
“In my office, we can’t bring in a 12-year-old to make copies, 12 is too young, but we will take that same 12-year-old and put them in a field. The actual law allows them to work unlimited hours as long as school is not in session,” added Maki. “There is basically no protection.”
A billionaire Chinese dealmaker has gone missing, plunging one of the country’s top investment banks into turmoil.
Bao Fan, the founder and executive director of China Renaissance, is a major figure in the Chinese tech industry and has played an important role in the emergence of a string of large domestic internet startups.
Shares in China Renaissance slumped after the bank announced to the Hong Kong stock exchange on Thursday that it had been unable to contact Bao, without giving further details.
The stock plunged 50% at one point after the statement, before clawing back to about 30% down.
According to the financial news outlet Caixin, the 52-year-old had been unreachable for two days as of Thursday evening.
The executive committee of China Renaissance told employees not to worry in a message on Friday morning. “[We] believe that everyone has had a restless night. At this time, [we] hope that you do not believe in or spread rumours,” the message said, according to the Wall Street Journal.
Bao’s disappearance is raising concerns over a possible renewed crackdown on China’s finance industry as President Xi Jinping persists in his longstanding campaign against corruption.
The Chinese government has cracked down on several big industries, including technology, education and real estate, as part of Xi’s “common prosperity” drive to “keep income distribution and the means of accumulating wealth well-regulated”.
At least six billionaires have been cowed under Xi, including Jack Ma, the founder of the e-commerce giant Alibaba, who disappeared for three months in 2020 after criticising market regulators.
Willer Chen, a senior analyst at Forsyth Barr Asia, told Bloomberg the executive’s absence “could be a long-term overhang on the stock, given Bao is the key man for the company”.
Wang Wenbin, a spokesperson for China’s foreign ministry, said he was “not aware of the relevant information” when asked about Bao’s disappearance.
“But I can tell you that China is a country under the rule of law,” he said. “The Chinese government protects the legitimate rights of its citizens in accordance with the law.”
China Renaissance has developed into a global financial institution, with more than 700 employees and offices in Beijing, Shanghai, Hong Kong, Singapore and New York.
Bao founded the bank in 2005 after working at Morgan Stanley and Credit Suisse. He competed against Wall Street stalwarts to win mandates on huge deals and stock market listings.
The group has supervised the initial public offerings of several domestic internet giants, including that of the leading e-commerce firm JD.com. Bao also facilitated a 2015 merger between the ride-hailing firm Didi and its main rival at the time, Kuaidi Dache.
Desmond Shum, a Chinese former tycoon, speculated that Bao may have been a target because of his insider knowledge of such deals. Mergers of big companies often involve political as well as business connections.
The case of China Renaissance is reminiscent of a pattern of investigations into the country’s leading financiers in recent years.
In 2017, the Chinese-Canadian businessman Xiao Jianhua was arrested by mainland authorities and received a 13-year jail sentence under corruption charges last August.
Known to hold close ties to top Chinese Communist party leaders, the billionaire was reportedly abducted from his Hong Kong hotel room by plainclothes police officers from Beijing. At the time of his arrest, Xiao was one of the richest people in China, with an estimated fortune of $6bn.
According to Caixin, the China Renaissance president, Cong Lin, was taken into custody last September as authorities launched an investigation into his work at the financial leasing unit of the state-owned bank ICBC.
More than 100 children have been discovered to be illegally employed by a slaughterhouse cleaning firm across the country, federal authorities said.
The Department of Labor announced that a federal investigation found Wisconsin-based Packers Sanitation Services Inc (PSSI) employed at least 102 children, ranging from 13 to 17 years old, to work overnight shifts at 13 meat processing facilities in eight states.
The investigation discovered that children were working with hazardous chemicals and cleaning meat processing equipment including back saws, brisket saws and head splitters. At least three minors suffered injuries while working for PSSI, one of the country’s largest food safety sanitation service providers.
The states in which the children were employed include Arkansas, Colorado, Indiana, Kansas, Minnesota, Nebraska, Tennessee and Texas. The processor which had the largest number of employed minors is JBS Foods, with 27 children employed, followed by Cargill Inc, which had 26 employed children.
Other processors include Tyson Food, George’s Inc, Buckhead Meat of Minnesota, Gibbon Packing Co, Greater Omaha Packing Co Inc, Maple Leaf Farms and Turkey Valley Farms.
According to court documents, a 14-year-old child who worked at a Nebraska facility from 11pm to 5am five to six days a week from December 2021 to April 2022, cleaned machines “used to cut meat”.
At one point, the child fell asleep in class and also missed class after suffering injuries as a result of chemical burns. Several other children were also reported to have suffered from chemical burns.
The Department of Labor assessed PSSI $15,138 for each minor-aged employee who was employed in violation of the law. According to the news release, PSSI has paid $1.5m in civil money penalties.
“The child labor violations in this case were systemic and reached across eight states, and clearly indicate a corporate-wide failure by Packers Sanitation Services at all levels,” said Jessica Looman, the department’s principal deputy administrator of the wage and hour division.
“These children should never have been employed in meat packing plants and this can only happen when employers do not take responsibility to prevent child labor violations from occurring in the first place.”
Meanwhile, Michael Lazzeri, a Chicago-based regional administrator with the labor department, said that when the wage and hour division arrived with warrants, “the adults – who had recruited, hired and supervised these children – tried to derail our efforts to investigate their employment practices”.
During fiscal year 2022, there was a 37% increase in child labor law violations across the country, with at least 688 children working in dangerous conditions.
Despite the Department of Labor’s warnings that child labor violations have increased since 2015, Republican lawmakers across the country have in recent months been pushing for the expansion of the types of approved work, as well as work hours.
“Now there are states that want to go back toward that direction to deal with labor shortages by using teens, even to the extent of placing them in dangerous work environments – [it] doesn’t make sense. It’s disregarding their welfare,” Reid Maki, director of child labor issues and coordinator at the Child Labor Coalition, told the Guardian.
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