The UK National Contact Point (NCP) for the OECD Guidelines for Multinational Enterprises (the Guidelines) has decided to allow the complaint from UK Lawyers for Israel and has stated that  the issues raised by UKLFI “merit further examination”. The complaint was originally brought against PwC in December 2016 and it has taken the NCP 18 months to reach this initial assessment.

PwC, Tel Aviv

The NCP, a Government body which promotes and enforces human rights standards for multinational corporations “decided to allow the complaint” made by UK Lawyers for Israel (“UKLFI”), an NGO which seeks to promote the proper application of laws in relation to Israel.

The Government body’s initial assessment, released on 15 June 2018 here demonstrates that all auditors must pay attention to the human rights impact of the entities which they are auditing.

Audits by Big Four companies are relied on by major donors, including the UK Government and the World Bank to ensure that taxpayer money is not being diverted to fund terrorism and other human rights abuses abroad. PwC’s audits of the PA are a case in point.

UK Funds to Terrorist Salaries

The UK Government contributes around £67 million of tax payers’ money per year to the PA. Significant amounts of PA funds are paid to convicted terrorists  in salaries and other benefits. Research shows that this incites further terrorism.

The Minister of State for International Development, Alistair Burt, recently answered a question regarding the processes the Department has in place to monitor the delivery and spending of UK aid in the West Bank and Gaza Strip by saying that DFID’s project spending in the area “is subject to annual, independent financial audit…. DFID has a zero-tolerance approach to fraud and has robust controls against diversion of aid to terrorist groups.”

UKLFI’s Complaint

UKLFI submitted in its complaint to the Government body that:

• PA payments to terrorists infringe the human rights of three groups: (i) victims of terrorist attacks; (ii) Palestinian Citizens; (iii) taxpayers in donor countries.
• PwC appears to have failed to raise concerns about the PA spending aid money on salaries for terrorists and on glorifying terrorism.
• The PA’s payments to terrorists and their families encourages racial or nationalistic hatred and harms the peace process between Israel and the Palestinians. They curtail the establishment of flourishing Palestinian civil institutions and infringe the rights of Palestinian citizens to prudent governance.
• If auditors ignore, or fail to raise such issues, this can have the effect of facilitating terrorist activity.

PwC’s Case

PwC attempted to argue that it was not required to pay attention to terrorist funding because it had not specifically agreed with the PA that it should do so. The Government body disagreed: “… PwC also stated that the narrow scope of its work did not require it to consider this issue, with the implication being that PwC should not be held accountable to a standard that it was not aware of. However, the Guidelines exist to promote an overall standard of good practice.”

Next Steps

The Government body will formally ask both parties whether they are willing to engage in a mediation process, with the aim of agreeing how the issues identified can be successfully addressed. UKLFI is willing to engage in such a mediation and is eager to discuss how to bring PWC’s operations into compliance with the Guidelines and to ensure that PWC undertake actions to avoid and prevent future human rights infringements.

Jacob Turner, who co-authored the submission to the Government body on behalf of UKLFI said: “The interim assessment shows auditors can’t just turn a blind eye to human rights abuses being committed or facilitated by the entities which they are auditing. This important development is not about stopping donations to the Palestinian people, it is about ensuring that they are not used to fund terrorism.” 

Key Quotes from the Complaint

“The effect of the 2004 Terrorist Payment Law and its 2005 amendment is not just that the PA pays the salaries of terrorists in Israeli prisons but that the more serious the crime, the greater the rewards for the prisoners while serving their sentence and on their release.”

“A report of the UK’s Overseas Development Institute of November 2015, found empirical evidence suggesting that the PA’s payment of terrorists’ salaries combined with its policy of holding open the jobs of convicted terrorists had encouraged them to engage in conflict.”

“In order to provide for accountability as well as to improve the effectiveness of projects, it is standard practice for major donors – whether international organisations or governments – to instruct external auditors to audit their projects.”

“Because of the unwillingness of PWC to subject its audit reports to public scrutiny, it is unclear whether the funds from donors who rely on PWC’s guidance are directly funding the incitement of terrorism, or whether such funds, given uncritically, are liberating other resources that the PA can devote to the incitement of terrorism.”

Notes for Editors

1. The Organisation for Economic Co-operation and Development (“OECD”) created a set of Guidelines for Multinational Enterprises which set non-binding principles for responsible business. These include internationally-recognised standards for human rights, protection of the environment, the rights of workers, and combating bribery.
2. Members of the OECD are required to maintain a complaint mechanism against companies which breach the Guidelines, for example by abusing human rights, their workers or the environment. The complaint mechanism is known as the National Contact Point (“NCP”). This complaint has been made to the UK’s NCP, which is part of the Department of International Trade.
3. The NCP can recommend actions to the entity concerned, including that it change its behaviour and that it enter into a mediation with the complainant. If a complaint is upheld and the company fails to change its behaviour, the NCP can issue a final statement recording that the company has breached the Guidelines.
4. In the past, a complaint to the UK’s NCP led to a mining company (SOCO) completely abandoning a mining project in the Congo which threatened a World Heritage Site.
5. The last Initial Assessment published by the UK’s NCP was on 22 November 2016

UKLFI’s full complaint is here:    UKLFI submission to OECD