The Human Rights Auditing Standards and Procedures Project is the centerpiece of an innovative human rights and business program at the International League for Human Rights. The League's concept is simple: major transnational corporations prepare financial statements audited by accounting firms pursuant to the auditing and accounting standards promulgated in their home countries or international accounting standards. Part of the auditing process already includes valuing contingent liabilities, such as pending and threatened litigation and liability for environmental damage. Adding measurable and quantifiable human rights standards to the accounting and auditing procedures will protect public companies from contingent punitive liabilities and other potential associated costs by providing them with both processes to inhibit or mitigate human rights abuses and annual feedback on their effectiveness.

The timeliness of this initiative is demonstrated by the wide press coverage of such violations of international human rights standards as the use of child labor in the textile industries and the increase in employee discrimination and harassment litigation. Additionally, a number of proposals have been advanced by leading nonprofit organizations in the field, such as Business for Social Responsibility and the Council on Economic Priorities, in an effort to develop model codes of conduct and systems for independent monitoring. Many socially responsible corporations have also already introduced voluntarily codes of conduct.

Greater efforts to enhance human rights practices of corporations reflect the values of corporate management and shareholders whose sensitivity to human rights has been fostered by both the development of international human rights law in this century and comprehensive media coverage of violations. The League has conducted preliminary work, funded in part by a grant from the European Human Rights Foundation, to establish that a company's value is impaired by human rights abuses. The converse is also true -- shareholder value is maximized by observation of the norms of international humanrights.

To date, transnational corporations and non-governmental organizations committed to fostering favorable human rights conditions have focused on establishing codes of conduct. The League's approach is to tap into the accounting/auditing cycle to develop an approach to independent monitoring, making codes of conduct more universal and enforceable because they will be performed internally by those most motivated -- the auditors.

In the process of promoting business compliance with human rights standards, there are legitimate concerns of corporate management's that must be addressed. These include confidentiality of proprietary information and the objectivity of the monitoring apparatus. However, by using the existing structure of internal accounting for contingent liabilities and audits by independent professionals, these concerns can be overcome and the deadlockover compliance broken.

The League seeks to promote new strategies for management and auditors. The Project proposes to develop accounting and auditing standards that can be adopted as part of the international accounting standards or the Generally Accepted Accounting Principles of particular countries. Prepared by a team of professionals from business, accounting, and law, and tested in "real world" situations, the proposed Human Rights Auditing Standardsand Procedures Project represents a unique approach to objectifying the liability of corporations for violations of human rights and enables investors to reward responsible management. The League project will focus on basic core rights, for which an international consensus already exists in enforceable treaties, broadly encompassed by the following principles: 1) non-discrimination, 2) free association, 3) security of person, 4) security of property, and 5) rights of children.

Each category of core rights will include a range of issues. Divergent matters such as sexual harassment and worker safety, for instance, would both fall under the category of security of person. Likewise, access to education and compliance with child labor laws would be within the purview of the rights of children.

International treaties and covenants do not, however, create a code of international law. Rather, it is up to signatory states to enact legislation enforcing the international principles of justice embodies in the international agreements. The Project will thus derive more specific human rights standards from such existing domestic laws, and other domestic laws when necessary, in the geographical areas in which most transnational corporations are headquartered, namely, the European Union, the United States and Japan.

The increased ability of transnationals to influence work, family, and individual political, social and economic rights and well being, and to do so simultaneously in more than one country through coordinated operations of companies domiciled in different countries, opens the way for transnational business to effect policy on a global scale. International human rights law provides a unique framework within which transnational corporationsmay develop universally acceptable standards of conduct. By virtue of its widespread acceptance by member states of the United Nations, it has entered the legal, moral, and public discourses of the world's nations, yet, through the medium of the United Nations and other international and regional bodies, it exists beyond the purview of any one national government.

It is usually difficult, if not altogether impossible, for the management of transnational corporations to be abreast of the human rights practices of their suppliers and distant subsidiaries. Nevertheless, in the course of its scrutiny, particularly in western countries, the public will generally overlook this reality and hold transnationals responsible for violations committed by suppliers or subsidiaries. Public reaction to even perceived complicity in a humanrights abuse on the part of a transnational can result in considerable financialconsequences to a transnational corporation. Section IV below outlines examples of situations where transnational corporations have suffered financial casualties as a result of being implicated in human rights abuses, including costs associated with consumer reaction and direct costs such as settlements and litigation expenses. The League contends that proper application and use of the human rights audit will strengthen the sense among the public that a transnational corporation has taken the necessary measures within itscontrol to preclude human rights abuses on the part of their suppliers and subsidiaries, thus curtailing adverse public reaction.

Efficient capital markets cannot exist without accounting, the figuring and recording of financial transactions, and auditing, the formal checking of financial recordings. The layperson's notion of auditing and accounting is typically one of a technical, procedural activity, founded in law (e.g., the 1933-34 Securities Acts and the Foreign Corrupt Practices Act of 1977) and enforced by institutions (e.g., the Securities and Exchange Commission, the Financial Accounting Standards Board). While substantially true, it isreally only half the story. Though audit obligations eventually become enshrined in law, this mandatory phase has usually been preceded by an era of "voluntary" disclosure and audit attestation. Likewise, audit attestations need not be restricted to financial data.

The concept of Environmental Accounting, for instance, evolved in the 1970's. A combination of external pressures (i.e., NGOs and heightened public awareness) for responsible environmental practices and a desire on the part of corporations to respond led to the creation of environmental audits. The new products divisions of the then Big Eight accounting firms heeded requests for environmental attestations and produced audits addressing issues of environmental concern. Eventually, industry standards emerged andprofessional accreditors such as the American Institute of Certified Public Auditors ("AICPA") promulgated basic universal principles of environmental audits. Thereafter, over a period of time in the mid-1990s, the International Accounting Standards Committee ("IASC") drafted international principles of international accounting.

That the trend toward ever greater corporate disclosure through accounting and auditing should work its way through to the field of human rights requires no special leap of imagination. Clients may be offered new specialized audit and assurance services in any area where there is an information need or exposure to litigation arising from errors, misstatements and/or distortions in the published financial statements. Indeed, human rights are but one of a range of new audit services currently under development by CPA firms.

Both the adoption of voluntary codes of conduct and the incorporation of principled responses in postulated situations have come unstuck on the issue of monitoring. Who ascertains compliance? The uniqueness of the League's Project is that it introduces no new relationships into the traditional audit. Rather, it builds on the relationships between corporations and their auditors rather than forcing transnational corporations to expose private records to outside monitoring agencies. The Project takes advantage of theaccepted independence of auditors regarding fiscal operations to ascertain the legitimacy of the Human Rights Audit, assuring the privacy of fiscal documents and encouraging best practices in corporate behavior. The use of the auditing model proposed in this Project breaks the deadlock between non-governmental organizations (NGOs) and corporations over independent monitoring by introducing third-party oversight acceptable tomanagement and amenable to NGOs.

_E. International Human Rights Law

Since the adoption of the Universal Declaration of Human Rights in 1948, an expanding global consensus has evolved about basic universal human rights. In six major treaties and a number of declarations and platforms for action, the member states of the United Nations have established a basis for international human rights law. Although the specific applications of these fundamental liberties may vary from region to region, the body of international law and jurisprudence represents a broad consensus that governments mustrespect individual rights and limit the obligations of individuals to states.

The fact that national governments have ratified human rights treaties promulgated in the United Nations has established the principles of universal human rights within nearly all the world's nation-states. Member states that ignore or transgress ratified treaties violate the Charter of the United Nations, in which they have committed themselves to act in accord with the international treaties ratified under their domestic laws. Indeed, governments have increasingly recognized their legal obligations to respect human rightsprinciples and to implement the decisions of international human rights courts and tribunals.

Until very recently, international human rights law remained primarily directed toward states within a narrow interpretation of state actions. Since 1993, the law has been increasingly applied when the state is not a direct actor in the traditionally understood manner but is liable due to neglect. The shifted understanding of the law is most obvious in issues of violence against women, where the state has been deemed a passive, if not active, participant when it fails to adequately protect women from violence on the streets, in the home and in places of employment.

Thus, international human rights law provides a unique framework with which to assess the worldwide practices of transnational corporations and their subsidiaries and suppliers. By virtue of its widespread acceptance by member states of the United Nations, international standards have entered the legal, moral, and public discourses of the world's nations, yet, through the medium of the United Nations and other international and regional bodies, exists beyond the purview of any one national government.

In preparing the Project, the League has drawn its core principles from the extensive body of international human rights law reflected in international treaties, declarations, and platforms for action. These principles are broadly encompassed in the following (SEE ALSO APPENDIX FOR SELECTED ARTICLES):

The principles of non-discrimination embodied in a series of international agreements, including the Universal Declaration of Human Rights, the Convention on the Elimination of All Forms of Discrimination Against Women, the International Convention on the Elimination of All Forms of Racial Discrimination, the Declaration on the Rights of Persons Belonging to National or Ethnic, Religious and Linguistic Minorities, the International Convention on Civil and Political Rights, and the International Covenant on Economic, Social and Cultural Rights, impose an affirmative obligation on states to guarantee equal protection under the law to all citizens and equal access to all rights and freedoms. Underscoring these rights are a series of agreements delineating classes of people considered especially vulnerable to discrimination, notably women and national, ethnic, religious and linguistic minorities. Although the Project recognizes the state-based nature of these treaties and conventions, the underlying principles more broadly and implicitly form the underpinnings of international human rights law. It is based on these principles that the Project will promulgate standards applicable to transnational corporations.

For instance, the principles of paying fair wages, equal remuneration for work of equal value and equal opportunity for everyone to be promoted can be incorporated into a series of auditable policies promoting equality among employees within transnational corporations. While transnationals cannot be held accountable for host country compliance with respect to non-discrimination, they can be held to standards of impartiality and fairness in theirown practices.

Free association issues arise in a number of circumstances. Perhaps most pertinent are those relating to freedoms of thought, religion, political assembly, and the right to organize. Notions of free association embodied in the International Covenant on Civil and Political Rights and the ILO Convention Concerning the Application of the Principles of the Right To Organise and to Bargain Collectively will be used to create Audit standards applicable to transnational corporations. Again, the purpose of the Audit will not be toimpose an affirmative obligation on the part of transnationals to effect change on the part of host countries. Rather, a duty will arise requiring transnationals to refrain from partaking in discrimination or retaliation against employees based on political or religious affiliation or for attempting to organize.

Notions of security of person in international agreements cover a range of issues, including rights to livable wages, freedom from slavery or involuntary servitude, and protection against offenses such as degrading treatment, bodily harm, or invasion of an individual's private life. These rights can be found in the Universal Declaration, the International Covenant on Civil and Political Rights, and several ILO conventions.

There are several aspects of corporate employment that fall within the reasonable purview of the right to security of person. Auditable procedures will be developed to prevent a range of abuses under this category of rights. Examples of work force related matters include in the security of person category include: a) payment of minimum / livable wages, b) worker rights to terminate employment, c) sexual harassment, d) employmentof world-class safety standards, and e) noninterference with and non-discrimination based on a worker's personal or family life.

The Universal Declaration and the International Covenant on Economic and Cultural Rights include protection of property rights. The Audit would look to the policies of corporations with respect to appropriating or using property to determine whether efforts are made to avoid the intentional taking or use of property rightfully owned by an entity other than that with which the corporation is engaged in negotiations. For instance, the Audit would check to see whether property was previously acquired by eminent domain.

If so, an auditor would seek to uncover such basic information, though she would not be required to attest to the fairness of the eminent domain process in the host country. Revealing the use of eminent domain will at least "raise a flag," so to speak, allowing non-governmental organizations to look further into the processes involved.

The Audit will include a section dedicated to the pursual of a corporation's employment practices with respect to children. Using more traditional approaches to children's rights, a part of the children's section of the Audit will inquire as to whether the corporation is in compliance with both local and international restrictions on child labor. Rather than strictly applying a minimum age test, however, and based on evolving standards for childlabor, the Audit will seek out additional information about corporate practices towards children in countries where children may work out of necessity. It will not be the auditor's call to determine whether a country qualifies as an exception, again leaving such subjective decisions to non-governmental organizations and public opinion. However, the Auditor will report on the existence and abidance by corporate policies regarding hoursof work, working conditions, access to and opportunities for education, and exposure to hazards requiring adult discretion.

The International League for Human Rights proposes to establish a Human Rights Audit. Recognizing the complex, and well debated, division between law and accounting, the League intends to develop objective standards incorporating international human rights law against which auditors will be able to conduct an audit without the benefit of a formal legal background. The League, in collaboration with professional accountants, attorneys,non-governmental associations, and representatives of business, investors andcorporations, seeks to accomplish the following:

- review existing human rights monitoring procedures;

- craft human rights audit standards and procedures, built on the foundation of existing accounting and auditing standards and procedures, to render transparent the human rights practices of transnational corporations;

- introduce and familiarize accounting practitioners with human rights auditing standards and procedures;

- institutionalize the Human Rights Audit as a standard fixture of annual corporate reporting as mandated by the Financial Accounting Standards Board, the International Standards of Accounting Committee, and other standard-setting regulatory bodies.

The Project is organized into phases: research, implementation, and dissemination.

_A. Year One: Research & Recruitment

The research phase began in the fall of 1996. The Project initially undertook a series of case studies of transnational corporations to establish how gross violations of fundamental human rights may affect the capital markets. Each case study addresses the character of the violations and the nature of the industry. The studies seek to determine whether lawsuits and public pressure, including boycotts, may substantially reduce profits, measured by changes in gross sales, settlements with litigants, litigation costs, and compliance costs associated with stepped-up government regulation.

The studies are based on public financial information, written procedures and policies of the corporations, and a review of the popular press and the financial literature. The League presented the preliminary research findings at the Fifth Annual Interdisciplinary Perspectives on Accounting Conference, held in Manchester, England, in July 1997.

During the first year, the League also began recruiting expert reviewers to comprise the Project's review committee. In addition to drawing support at business and academic conferences, the Project staff met one-on-one with representatives of the core constituencies deemed vital to the Project-- attorneys, auditors, business and investor representatives, and other non-governmental organizations. A list of key supporters of the Project to date is included at the back of this proposal.

B. Years 2 and 3:

The League regards years two and three as the heart of the Project, when the staff, working closely with advisors, will actually create the Human Rights Audit standards, scope, and procedures. A Blue Book will be designed for corporate managers to implement model internal procedures for purposes of preventing or mitigating human rights abuses, and a Red Book will be written as the technical manual for conducting the Human Rights Audit. Work in years two and three will proceed along two crisscrossing tracks, one moving through research into current national and international practices, models, and precedents; and the other, more analytical, developing exactly how theconcept of a human rights audit, as interpreted through current practices, models, and precedents, is made tangible, practical, user-friendly, and adaptable to the multifaceted nature of modern international business.

During this period, the League will sponsor a meeting in New York City that will convene experts for intense discussion about the basic parameters of the proposed Human Rights Audit. The meeting will help create an intellectual community of interest to support the research and analysis of the coming two-year period. Several major papers, based on research done in year one, will provide focus for the meeting, which will be attended by accountants, business representatives, representatives of investors, and other not-for-profitorganizations.

The goal of the New York meeting will be to establish a group of expert reviewers (the Review Committee) drawn from among all interested parties who will serve to review the process of creating auditing standards and procedures for the Human Rights Audit. The experts will review in draft form all proposed standards and procedures including and not restricted to types of violations, relevance to specific industries and business sectors, and conditions peculiar to the national domicile of the transnational corporations.

The Project anticipates to have at least 50 reviewers. International human rights lawyers, corporate representatives, investors, auditors and accountants as well as representatives from non-governmental groups and government will form the Review Committee. The group will be international as well. The Project expects to work closely with reviewers and to solicit comments from across the spectrum of interested parties outside the Review Committee.

There is no consistent and clear set of guidelines readily available for adoption as the standards and procedures of a human rights audit. The body of international human rights law, however, is finite, both in its original documents, commentary and judicial opinions. During this two-year period, the Project's research will provide material for a series of easily referenced cases that may be applicable to the process of establishing internationalstandards of human rights as they relate to the core rights enumerated above.

Though international conventions, treaties, and covenants will be the starting point for developing the Human Rights Audit, the Project will also study rulings handed down by multilateral regional institutions, such as the European Court of Human Rights, that have cultivated human rights precepts. Since nearly all of the top 500 transnationals are based in the United States, European Union, or Japan, human rights maxims enumerated in regional courts such as the European Court of Justice as well as judicial decisions of the high courts of these countries also will be explored.

In search of information about current systems for monitoring human rights in business, the League has already examined several audits, especially a U.S. Office of Management and the Budget and General Accounting Office audit to monitor government contractors and aid recipients to ensure compliance with federal civil rights and similar requirements.

Based on the Project's compilation of (1) relevant international human rights law, (2) and the compilation of internal controls already a part of many transnationals, and (3) augmented by the monitoring practices developed by national governments in accord with relevant legislative and administrative rules, especially in such areas as non-discrimination and environmental protection, the Project team and advisors will create two manuals forthe new Human Rights Audit. The Blue Book will provide model procedures for internal managers to avoid or mitigate human rights abuses, and the Red Book will assist independent auditors who will monitor the human rights practices of transnationals.

Blue Book.

The Blue Book will have a detailed history and explanation of the HumanRights Audit. The guide will present model internal control programs that corporations can adopt to come into compliance with the Human Rights Audit. These control programs will include policies and procedures and detail the records needed for the Human Rights Audit. Discussion will include what areas are covered by the Human Rights Audit and how a corporation can become audit-ready. It will also give sample opinions that the corporation can expect to receive and publish with its financial statements. The Blue Book will essentially be an executive summary of the Project.

The Blue Book will serve as the familiarizing agent, not only for corporations but also for any non-auditing group. The Blue Book will contain enough information on the scope of the Human Rights Audit that non-governmental organizations and investors can use the guide to understand the audit results. The goal of the Human Rights Audit is to encourage model corporate behavior.

Red Book.

Whereas the Blue Book will be an executive summary, the Red Book,entitled "The Auditing and Accounting Guide to the Human Rights Audit," will be the detailed technical manual for auditors. Modeled on the AICPA's Audit and Accounting Guides, the Red Book will serve as the ultimate authority for the Human Rights Audit. It will begin with a detailed discussion of the Human Rights Audit's scope and requirements and will discuss principles from the point of view of the auditor. The Red Book will be used for planning a Human Rights Audit, referencing during the audit, training auditors, and helping during consultation with clients.

Since the purpose of the Red Book is to guide auditors from the Human Rights Audit planning stage through preparing opinions, it will include model and sample positive assurance letters. Furthermore, the Red Book will assist auditors in helping clients create internal controls. In part, this section will counsel corporate clients on how to be audit-ready, furnishing special recommendations for an initial phase-in period. For the periodthereafter, the Red Book will dispense recommendations on creating or repairing internal controls to address violations.

The Human Rights Audit procedures, including questionnaires, etc., will be set forth in the Red Book as well. The procedures will enable auditors to navigate through the entire Human Rights Audit process.

As the Human Rights Audit is being drafted, the League will make presentations at workshops and conferences in order to introduce the approach to practitioners. The League will additionally encourage auditors and already interested corporations to use the draft Human Rights Audit in order to test its practicality. The audit will be fine tuned and updated in response to comments made as a result of these test-case audits.

Once the Human Rights Audit has been employed in a sufficient number of test-cases, the League will work with the Project Review Committee to institutionalize the Human Rights Audit as a standard financial accounting practice worldwide. This effort will include working closely with the remaining large accounting firms (presently referred to as the "Big Four" accounting firms) to incorporate human rights auditing principles into the regulatory standards promulgated by AICPA. Simultaneously, the League will pursue asimilar endeavor to add the Human Rights Audit to the agenda of IASC following environmental accounting's pattern of evolution discussed further below.

Efforts in the corporate and accounting worlds to construct human rights audits are evolving in accordance with the established precedent of responding to a client's need for more reliable information to mitigate financial risk. Corporations are facing adverse economic consequences resulting from incidents previously considered beyond their scope. During the fall of 1996, the Project began its research. It examined cases where transnational corporations had suffered financial losses or penalties as the result of failureto observe one or more fundamental rights, and it analyzed the cases according to five categories of rights: (1) racial discrimination, (2) gender discrimination, (3) clean environment, (4) secure property, and (5) fair labor practices. The following are examples of cases reviewed by the Project:

- The potential cost of racial discrimination can be gauged from the major financial repercussions suffered by Texaco. The company recently settled a race discrimination class action suit for $176 million, a cost of $.75 per share to investors. This loss does not include costs associated with litigation, the extensive public relations effort, nor the added expense of preparing for the ensuing annual reviews by the United States Equal Employment Opportunity Commission over the next five years.

- Allegations of gender discrimination are still dogging Mitsubishi's American auto manufacturing division. Its sales in the United States dropped 3 percent, in a year when other Japanese automakers were increasing their share of the U.S. market. A class-action lawsuit in the United States may cost the company tens of millions of dollars.

- The right to security of property has become an important issue as transnationals have expanded their operations and thus their need for land and facilities. Daewoo of South Korea became embroiled with Vietnamese peasants when it attempted to seize their land to build golf courses. Daewoo found its Project stalled for months, suffered damage to construction equipment, and received bad press throughout the world.

- Security of property surfaced again in another incident, this time in Europe, where Swiss banks are now reaping the financial and public relations losses of their indifference to the rights of Jewish victims of the Nazi Holocaust. The scandal has caused a drop in the Swiss franc and the Swiss stock market.

- Several multinationals have suffered losses because of allegations that they engaged in unfair labor practices. Nike became the object of protests for its production outsourcing to an Indonesian sweatshop that paid workers less than a living wage and forced them to work overtime. In another case, WalMart and the television star Kathie Lee Gifford had to take drastic public relations measures to defend themselves against charges that they dealt with Guatemalan sweatshops producing clothing bearing Ms Gifford's name.

In each of these circumstances, a comprehensive human rights audit should have disclosed the impending situations providing management with ample time to rectify them. For instance, a hypothetical human rights audit at Mitsubishi would have included random interviews with employees who would have been asked about any incidents of sexual harassment about which they were aware. Given the alleged pervasive climate of harassment at the plant, a human rights audit would likely have uncovered the environment in which such abuses were apparently routine.

The League also has consulted with representatives of ISAC to ascertain the proper procedure for having proposed human rights auditing standards formally reviewed and adopted. ISAC, an arm of the United Nations Committee on Trade and Development, meets annually in Geneva. It entertains only two new agenda items each year, both of which must be proposed and put on the agenda at the preceding annual meeting. Due to lack of funding, however, IASC was not convened in 1997, and its future is in doubt.

Universal Declaration of Human Rights -- Selected Articles:

Convention on the Elimination of All Forms of Discrimination against Women Selected Articles:

International Convention on the Elimination of All Forms of Racial Discrimination -- Selected Articles:

Declaration on the Rights of Persons Belonging to National or Ethnic, Religiousand Linguistic Minorities -- Selected Articles:

International Convention on Civil and Political Rights -- Selected Articles:

Universal Declaration of Human Rights -- Selected Articles:

Declaration on the Rights of Persons Belonging to National or Ethnic, Religiousand Linguistic Minorities-- Selected Article:

ILO Convention (no. 87) Concerning Freedom of Association and Protection of the Right to Organise -- Selected Articles:

ILO Convention (no. 98) Concerning the Application of the Principles of TheRight to Organise and to Bargain Collectively-- Selected Articles:

International Covenant on Civil and Political Rights -- Selected Articles:

Article 1:

International Covenant on Economic, Social and Cultural Rights-- SelectedArticle:

Universal Declaration of Human Rights -- Selected Articles:

International Covenant on Civil and Political Rights -- Selected Articles:

ILO Convention (no. 105) Concerning the Abolition of Forced Labor:

Generally, regulatory promulgation of Article 4 of the Universal Declaration

Universal Declaration of Human Rights -- Selected Article:

Universal Declaration of Human Rights -- Selected Article:

Convention on the Rights of the Child -- Selected Article: