08/26/2010 03:42 pm ET Updated May 25, 2011

Are IPOA, BAPSC and PSCAI Complicit or Just Irrelevant?

Today we consider the work of Surabhi Ranganathan. She is a PhD Candidate, Cambridge University, a graduate of the New York University Law School and a consultant to the law school's Institute for International Law and Justice.

Earlier this year she published a paper in the Georgetown Journal of International Law
title "Between Complicity and Irrelevance? Industry Associations and the Challenge of Regulating Private Security Contractors."

Unlike numerous other law journal articles this is not another rehash of national or international laws . As she writes in her summary, "In this paper, I examine the reasons for and against giving serious consideration to the regulatory function of industry associations and engage in a critical evaluation of their claims to legitimacy, accountability and effectiveness as regulatory bodies."

It is important to note that she is not against private military and security contracting trade associations. Indeed, she thanks "Doug Brooks [founder of IPOA] for responding to many queries about industry associations." In fact, she thinks they do have a useful role to play.

In her introduction she writes:

In discussing regulation of the private military and security industry, scholars and policy advocates do not ignore the role of industry associations, but they do sideline them. The focus is on regulation by states, or by an international office created by treaty, or a combination of the two. Such "formal" regulation is undeniably important. However, a preference for it is not irrational only insofar as it can be assumed that states and international offices are willing and able to effectively regulate PMSCs. This is often not the case. On several occasions states have shown themselves unwilling or unable (or both) to regulate PMSCs. An international office that can do so is far from being realized. On the other hand, several industry associations have come into being in the last few years, each with at least a partial mandate for regulation of PMSCs. It is surprising then that their regulatory potential has received little serious consideration. To date there does not exist a single analytical account of their activities. Little effort has been made to grapple with issues relating to the legitimacy of their regulatory claims, and the effectiveness and accountability of their regulatory activities. This paper aims to fill that gap.
To clarify, I do not argue that industry associations should replace formal regulation. Recognizing the importance of national and international regulation, and of plural regulatory initiatives, my paper supports three conclusions. First, industry associations are important contributors to better regulation of PMSCs. Second, even so, their claims to legitimacy, accountability and effectiveness are mixed, and differ for each association. Third, some weaknesses in such claims have to do with external factors, such as lack of state backing and negative public perception. However, there are other factors that associations themselves should address to bolster their regulatory claims.

Now, some people are, to say the least, dubious about trade associations; suspicious of their advocacy of allowing greater industry self-regulation or avoiding further government regulation. I have been so myself, on various occasions, when their rhetoric does not match their actions. Given how well that has worked in other industry sectors (BP and the Minerals Management Service in the Gulf of Mexico anyone?) such suspicions are understandable.

On the other hand the trade association, notably the International Peace Operations Association (IPOA), since renamed the Association of the Stability Operations Industry; the British Association of Private Security Companies (BAPSC); and even the Private Security Company Association of Iraq (PSCAI) have done some useful things, such as informing legislators what actually goes on in the PMSC world so useful policy can be made. And to their credit no trade association has ever said that they should replace national laws or regulations

Still, there is good reason why state regulation of PSC should always come first. Ranganathan writes:

In general, academic scholars and policy advocates prefer formal regulation of PMSCs for two reasons: PMSCs offer essential services that are traditionally expected of a state, and, often, their operations bring them into close proximity with vulnerable populations.
This is especially true of conflict and post-conflict situations -- the focus of this paper -- where PMSCs are contracted to perform a range of functions, including guarding persons and property, providing logistical and operational support to the military, catering to requirements for food and living quarters during operations and post-conflict reconstruction; advising and training the military, and developing strategies for military operations, interrogation, and administration of prisons. Certainly, fears of human rights violations are well founded, as are concerns relating to compromises between state interests, military welfare and international stability, as a consequence of outsourcing to PMSCs.

She then notes biases that may influence people's preference for formal regulation such as a preference for "status quo," "seriously flawed memories" "susceptibility to "informational cascades," "availability heuristic." and "extremeness aversion."

But she goes on to say the preference for formal regulation is not solely a product of our biases.

There are two good reasons that support such preference. First, in theory, states (and international bodies) do have greater capacity to regulate PMSCs. Industry associations cannot impose criminal law sanctions upon wrongdoers. Their most stringent penalty is expulsion of a company from membership. In most cases, a state possesses greater power to investigate complaints relating to actions of PMSCs in the field. Moreover, a state is able to ban as well as otherwise regulate a PMSC in all cases where there is a territorial nexus or affiliation of nationality (of the company, or its employees), or where the state has concluded a contract with that PMSC. The jurisdiction of an international office may not even be limited by affiliations of territory or nationality. In contrast, companies may put themselves out of the reach of an industry association by simply withdrawing from membership.

Second, there are valid grounds for skepticism relating to the legitimacy of the regulatory role that industry associations play. Not only are industry associations often private bodies; they are also in essence trade groups with close affinities to their member companies and dependence upon member companies for funds and for manning various administrative committees. These are reasonable bases for doubt about the depth of the regulatory commitment of industry associations and their independence from the particular interests of their member companies. Industry associations are rarely afforded express recognition or backing by states, and this undermines their efficacy. It is, undeniably, a challenge for industry associations to construct a plausible account of the legitimacy of their regulatory commitment.

Ranganathan, however, does not dismiss the regulatory contribution of industry associations as unimportant. She considers them among the few extant regulatory agents and takes seriously their claims of being more plausible and effective regulators for the industry.

After detailing their various contributions she finds "industry associations do seek to promote high standards of conduct among PMSCs through cooperation with formal regulatory initiatives. However, like coercive mechanisms, cooperative mechanisms also lack full implementation."

Perhaps that is because such associations have conflicting goals, which are essentially to be both advocate for and regulator of their memberships. She writes:

The three industry associations are not just private bodies, they are also trade-associations with close links to their members and indeed are dependent upon members for the performance of their regulatory functions. Moreover, along with better standards of service, they aim to enhance contract opportunities for their members. These factors provide grounds for several concerns, among them: the possibility of spurious creation, or "capture," of an association by the specific interests of some of its members; the difficulty of ensuring continued adherence of PMSCs to industry associations; and the lack of accountability to third parties affected by the activities of the industry associations.
The creation of an industry association could be an exercise on the part of its members to provide only the facade of regulatory constraints. A driving force for this exercise could be the members' quest to differentiate themselves from business rivals. This is a pertinent concern given that two of the associations (BAPSC and PSCAI) were founded by their members.

Another concern, however legitimate the creation of an association, is its potential for capture by the specific interests of one or few of its members at the cost of other members, non-member companies, or relevant third parties, such as populations in their areas of operation. In the case of the three industry associations, capture is made possible by the active participation of members in regulatory functions. For instance, Professor Michael Waller claims that the complaint against Blackwater was made to IPOA by competitors of the company, possibly to discredit it in a bid to seize its Iraq contract. Its competitors could also have participated in review of its conduct in what would clearly have been an abuse of regulatory process.

Both the above situations are pernicious, for they indicate improper functioning of the concerned industry-association, even as the observers are lulled into false confidence about the regulated nature of the industry. In such cases we can hardly accept as legitimate any claim of the regulatory commitment of such an association. We thus need to examine what assurance we have that an industry association will act to accomplish the (regulatory) goals it prates.

Ranganathan notes that, "Good faith consent by PMSCs to the regulatory authority of an association does not guarantee that the association can bind members effectively if provisions allow members to opt out without any prejudice to their interests, if penalties for violation are insufficient, or if the enforcement process is too weak to make a material impact. Like bona fide consent, effectiveness speaks to legitimacy of the association as well as to the popular support it is likely to enjoy."

She also examines the associations' claims to legitimacy, accountability, and effectiveness. Although since PSCAI provides very little information she ends up primarily comparing IPOA and BAPSC. She finds that "IPOA clearly makes the strongest claim to order-based legitimacy" but that doesn't mean there isn't room for a lot of improvement.

The following is specific to IPOA. I include it not to pick on it but since Ranganathan finds it has the strongest claims it is worth noting what she sees as its weaknesses.

The contrasting structures of BAPSC and IPOA should not demand the conclusion that the latter performs its regulatory role better than the former. However, to the extent that both associations claim to regulate PMSCs, it may be said that IPOA displays greater structural commitment to do so. Even so, certain structural elements of IPOA do give rise to concern. These include the fact that a large chunk of IPOA's budget comes from the dues paid by its member companies and that seats on several of the task-specific committees, including the membership and standards committees, may be had on a volunteer basis. The first fact could imply the need for greater scrutiny of structural and procedural safeguards that insulate IPOA from the interests of particular members, but it is the second which is really structurally flawed in the sense that it creates greater potential for "capture" of institutional processes by particular members. Determining committee positions by soliciting volunteers not only allows members to sit in judgment over other members, but to do so solely on the basis of their will instead of a more neutral process like rotation or random selection. Moreover, there are no institutional checks to prevent a member from volunteering for seats on several committees and for years in succession. Thus, EOD Technology, Inc. ("EODT") has had representatives sitting concurrently on the Executive Committee, the Standards Committee and the Membership and Finance Committee in 2007 and 2008. In contrast, the membership criteria released by BAPSC indicate that at least the membership committee is elected by the BAPSC General Assembly.

IPOA also espouses "transparency" as vital to its legitimacy. However, its own procedures are only transparent to a limited extent. On the one hand, its website, journal, annual reports, and papers by its staff provide a vast amount of information about organs, personnel, and member companies, and also the mechanisms employed to promote quality of service among member companies. Some commentators also note with approval that the IPOA takes on interns as evidence of the openness of its operations.

On the other hand, this information changes rapidly -- previously available documents become unavailable quickly. In addition, there are aspects of the association's work that are not transparent. For instance, the association does not explain its membership decisions. It does not even provide a public record of the companies that had applied for membership and were refused. Possibly, this is motivated by prudential considerations, such as not deterring potential members from applying or current applicants from reapplying. The revelation that a company was refused membership could ironically also impair the image of the rest of the industry, because normally a refusal of membership would suggest that the applicant company was unwilling or unable to provide assurance of its compliance with the IPOA Code of Conduct. For an already prejudiced and non-discerning audience, this fact could smirch their perception of all PMSCs as unlikely to conform to the standards prescribed. It is understandable that IPOA is reluctant to contribute towards this adverse view of the industry.

Even so, the lack of a public record raises doubts about the veracity of IPOA's procedures. Given IPOA's financial dependence on annual contributions from existing members, and its policy of allowing members to volunteer for a position on the membership committee, it is a matter of real concern that members may be able to hijack the selection process for new members. A membership decision in favor of an applicant may be influenced by an existing member's interest in, or potential partnerships with, the applicant. Since the review process is not stringent in practice, a decision for refusal of membership may have been induced by members competing for business with the applicant. A controversial example is the repeated denial of membership to Aegis, information of which has leaked on to the Internet. Aegis is a founding member of BAPSC and PSCAI, though admittedly its reputation is far from spotless. Trophy videos of its personnel shooting at civilians are freely available on the Internet. Its chief executive is Tim Spicer, former manager of the notorious Sandline, Inc., which was involved in the "Arms to Africa" affair. However, it is not known whether either factor was relevant to IPOA's decision. Aegis's claims that it was "invited" to apply for membership each time it was refused have further obscured the facts.

Similar criticisms can be made with respect to IPOA's Enforcement Mechanism. At present, IPOA does not provide any information about complaints made to it. This is so despite the provision in the IPOA Code that in ordinary circumstances, submissions by complainants shall be deemed public. The IPOA also does not provide any public explanation for decisions of the Standards Committee or of the ad-hoc task forces. Indeed, the only occasion upon which the public may even [*362] be aware that a decision has been made is when a company has been expelled from membership, but there is no instance of this at present. Again, IPOA's policies may be guided by the same concerns, mentioned earlier, that confidentiality is important to encourage PMSC participation in IPOA, and that making complaints against particular companies will harm the public image of the whole industry. News sources suggest that Blackwater withdrew from IPOA membership because it was afraid of damaging information leaks during the IPOA review of its conduct. However, for stakeholders affected by the actions of a PMSC, or for a state, or even for other member companies, the secrecy surrounding IPOA proceedings may detract from its espousal of due process.

IPOA's aim for its membership to be taken as certification of a PMSC's high standards of service and belief that repudiation of membership will be a "commercial kiss of death" for the company is incongruous with the lack of transparency in its procedures, especially as there are no avenues for external review. Moreover, this aim is at odds with concerns that publicizing the action taken against one company will affect the reputation of all. While IPOA cannot on its own overcome audience prejudices, it can do more to assure the audience of the reliability of its decisions. Perhaps as a starting point, to compensate for lack of complete transparency, IPOA should introduce neutral oversight of its decision-making processes.

Ranganathan believes that despite their flaws, the trade associations have an important role to play. She concludes:

An exploration of the regulatory claims of the principal industry associations in the PMSC industry reveals a fairly sincere effort on the part of at least two of the associations to construct credible accounts of their legitimacy and accountability. Of course, there remain concerns about their structures and processes, responsiveness to third parties and their relationship (and fragmentation of authority) with each other. Critical questions also arise as to their actual capacity to regulate PMSCs. Although it is inaccurate to suggest that industry associations are irrelevant for this purpose, it is true that the absence of state backing limits the role that associations can play. Even so, their (actual and potential) role is both significant and distinct from the role played by states. Apart from prescribing codes of conduct, industry associations actually educate member companies about the standard of conduct expected from them, and, through a variety of mechanisms, persuade them to strive towards better performance standards. Moreover, they engage with individual companies at a micro level to identify and resolve problematic issues and assist governments at a broader level to understand PMSC operations and formulate policy. Their ability to "bind" members would improve tremendously if states were to view membership to these associations as a precondition for hiring PMSCs, or for permitting other consumers to hire PMSCs.