Afghanistan’s Ban on Private Security Companies: What are the Risks for Private Investors?

The month of March marked a key deadline in the compulsory — but gradual — transition from the use of private to public security forces in Afghanistan.  This transition was initiated in August 2010 when President Hamid Karzai issued Presidential Decree 62 in response to a number of criticisms regarding the presence, role and activities of private security companies ("PSCs") in Afghanistan. With a few exceptions, the Decree called for all private security companies (including Afghan-owned or run PSCs) to be disbanded by March 2012.   

Current and Future Security Needs — and Associated Risks

Though government programming and development operations may be most affected by this development right now, Afghanistan’s untapped mineral deposits, reportedly worth close to USD $1 trillion, are attracting significant attention from private investors.  It appears likely that mining operations will expand considerably in the coming years, and this operations will require security.   

Companies seeking to operate in Afghanistan are well-advised to pay close attention to the vetting, training, and conduct of the security forces forces with which they enter into contracts. In remarks delivered at a July 2010 Extraordinary Plenary Meeting of the Initiative of the Voluntary Principles on Security and Human Rights, a tri-partite multi-stakeholder initiative, John Ruggie, the former U.N. Special Representative for Business and Human Rights, observed that,

the worst forms of corporate-related human rights abuse take place in conflict or otherwise stressed governance zones. They account for the largest number of foreign direct liability claims against multinational companies…brought in domestic courts but often invoking international standards.

The Special Representative also observed that companies operating in areas of conflict "increasingly suffer significant financial costs as a result of stakeholder-related risks to their operations—which in turn reflect push-back by communities for harms they associate with company activities." In this context, companies seeking to operate in Afghanistan face considerable security challenges, and associated legal, reputational, and operational risks.  

Seeking Commitments from Security Providers in Afghanistan

At this time, the Afghan Public Protection Force (APPF) is currently slated to fill the security void created by the ban on PSCs.  The APPF is a pay-for-service security provider operated under the Afghan Ministry of the Interior.  It is a state-owned enterprise, allowing it to contract with both domestic and international customers. 

The APPF has made available on its website its Contract Template that includes an Annex entitled “Code of Conduct Implementing Document.”  Referencing international law, domestic law, the Montreux Document on Private Military and Security Companies, and the Respect, Protect, Remedy Framework, the Annex notes that the APPF commits to operating in accordance with Afghan laws and regulations as well as relevant corporate standards of business conduct.  Further, it commits to operating in a manner that recognizes and supports the rule of law, respects human rights and protects clients’ interests.

Even with these stated commitments, companies contracting with the APPF should carefully consider their individual exposure to security and human rights-related risks. Companies entering into contracts for security should carefully consider the potential risks associated with such contracts and the extent to which both voluntary guidelines, such as the Voluntary Principles on Security and Human Rights, and negotiated commitments on oversight and training can help mitigate and/or avoid certain security-related risks. 

Notably, the passage of the March 2012 deadline, however, does not mean that all PSCs have left Afghanistan.  The Decree provided for the establishment of risk management companies ("RMCs").  These companies, once licensed by the APPF, may operate in-country to provide services restricted to “security advice and expertise.”  To date, a number of PSCs have already established RMCs.

Looking ahead, it is reported that Iraq is considering a similar ban on private security companies, a development which will significantly impact a number of companies already operating in the country. At this time, it remains to be seen whether the approach adopted by the Iraq government will resemble that in effect in Afghanistan. 

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