A recent jury verdict in the U.S. highlights the importance of businesses ensuring compliance with applicable laws in respect of all parties they engage with throughout their operations — no matter the nature of the relationship or where the counterparties are situated.
On June 10, 2024, a South Florida jury ordered Chiquita Brands International (Chiquita) to pay US$38.3 million to the family members of eight men killed in Colombia between 1997 and 2004 by members of the Autodefensas Unidas de Colombia (the United Self-Defense Forces of Colombia, or AUC), a Colombian paramilitary organization. According to lawyers involved in the case, it marks the first time an American jury has held a large U.S. corporation liable for serious human rights abuses in another country.
The Chiquita case
The verdict in this case follows a nearly two-decade judicial process. In criminal proceedings commenced in 2007, Chiquita pleaded guilty to "engaging in transactions with a specially-designated global terrorist" by making the payments.1 The payments by Chiquita were made through intermediaries and in the form of direct cash payments. Chiquita agreed to pay a fine of US$25 million in order to settle the criminal charges. Following Chiquita's guilty plea, hundreds of plaintiffs filed suits in the U.S. The claims in this case stem from those initial suits.
According to evidence provided to the jury as a part of this case, Chiquita had paid US$1.7 million to the AUC in payments characterized as "security services" for accounting purposes. However, the jury found no such services were actually provided. Chiquita argued that the payments were extortion payments, while lawyers representing the families argued that Chiquita's operations benefited immensely from the atrocities committed by AUC since the company was able to buy the land of slain farmers at depressed values and rapidly expand production.
The jury was asked to determine, among other things, whether Chiquita — one of the world's largest banana producers — had acted as a "reasonable businessperson" by making the payments. In its decision, the jury held that Chiquita "knowingly provided substantial assistance to the AUC" and that this activity created a foreseeable risk of harm. Jurors rejected Chiquita's argument that it had no choice but to make the payments.
Chiquita has publicly stated that it intends to appeal the verdict. Meanwhile, a second case against the company by another group of plaintiffs is due to commence later this year, and thousands of related claims against Chiquita remain pending.
Implications for Canadian businesses
Despite being heard and decided under U.S. law, the Chiquita case serves as a stark reminder of the potential exposure businesses may face for human rights abuses or other criminal activity by those they engage with, including in their international operations. As businesses — including Canadian businesses — continue to work to expand their operations abroad, it is imperative that they are mindful of the risks of failing to perform adequate due diligence on counterparties, scrutinize all payments and monitor their activities in all jurisdictions in which they operate.
The jury's verdict comes at a time where the Canadian government is increasingly focused on requiring Canadian businesses and businesses operating in Canada to ensure compliance throughout their operations and supply chains, including by third parties engaged on their behalf. Over the past few years, the government has introduced new legislation and other initiatives imposing various obligations on certain companies with respect to their international operations and supply chains. Among other things:
- In 2019, the government launched the Canadian Ombudsperson for Responsible Enterprise (CORE) to review complaints about alleged human rights abuses by Canadian companies operating internationally.
- Canada's Fighting Against Forced Labour and Child Labour in Supply Chains Act introduced annual reporting obligations for certain businesses to report, among other things, steps taken to assess and manage the risk of forced labour and child labour in their supply chains.
Separate and apart from these regulatory developments, companies may face civil and/or criminal liability for illicit actions within their global operations, including the actions of third parties.
While these developments have focused on supply chain diligence and compliance in respect of human rights issues, the risks companies face in their international operations are much broader. Wrongdoing for which companies may be held responsible include not only human rights violations but also other forms of economic crimes, such as corruption, money laundering, fraud and sanctions violations.
Supply chain diligence and compliance generally focuses on suppliers and contractors engaged by a company in the course of business, but the wrongdoing in question in the Chiquita case is notable insofar as it was not in the course of services provided by the AUC to Chiquita. Rather, Chiquita having made payments to the AUC while understanding the risks associated with the organization was sufficient to ground liability under applicable U.S. law. Though it is not known how this case would be viewed under applicable Canadian law, this reinforces that companies must ensure that all payments are made for a legitimate business purpose or they may face significant liability.
What should businesses be doing to ensure compliance?
As noted in our prior blog post, there are various steps businesses can consider as part of an overall compliance strategy. These measures — where accompanied by procedures designed to operationalize them effectively throughout a business — are tools which may help a company mitigate the risk of illicit activities throughout their operations, as well as the financial and reputational dangers that may manifest in the event of non-compliance. As we have previously written, steps companies can take include implementing internal policies and procedures, know-your-counterparty (KYC) measures, formal procurement processes, supplier codes of conduct, contractual representations and warranties, rights of audit, training and disciplinary procedures.
Further, while implementing compliance measures to manage increasing regulatory burdens can involve significant costs, it doesn't have to "break the bank". Implementing policies and procedures that are tailored to your business can serve as a crucial tool to mitigate risk and prevent much larger compliance costs down the line.
In the Chiquita case, the jury's verdict emphasized just how extensive these costs can be, as well as the need for businesses to conduct ongoing diligence with respect to activities in their supply chains. Businesses must not only understand who they are doing business with, but should ensure all representatives within their operations — whether within the company or third parties — understand the expectation that they operate ethically and in compliance with all applicable laws. Crucially, companies must ensure that all payments are for a proper business purpose and are accurately recorded in books and records. As the Chiquita case makes clear, failure to do so may expose companies to potential legal liability as well as associated reputational damage.
Footnote
1. The U.S. State Department designated the AUC as a "Foreign Terrorist Organization" in 2001. See: Secretary Colin L. Powell, "Designation of the AUC as a Foreign Terrorist Organization," U.S. Department of State (Archive), Press Release, 10 September 2001.
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