Reducing the Funding Gaps for Atrocity Victims

Reducing the Funding Gaps for Atrocity Victims

[David J. Scheffer is Visiting Senior Fellow of the Council on Foreign Relations and Tom A. Bernstein Genocide Prevention Fellow, U.S. Holocaust Memorial Museum, and was the first U.S. Ambassador at Large for War Crimes Issues (1997-2001). The author’s observations and views in this article are solely his own and do not reflect any institutional position.]

How will the survival and legacies of tens of millions of victims of atrocity crimes and severe human rights abuses going to be met during the global recession and COVID-19 pandemic?   Governments are now severely limited in what they can fund to meet the insistent demands for reparations and economic assistance for victims who have suffered grievously, or are family of those who died, as genocide, crimes against humanity, war crimes, aggression, or human rights violations devastated their societies.  

The victim populations stretch across the globe. They include the survivors of ongoing atrocity crimes as well as those stretching back decades to assaults on civilians in Cambodia, the Balkans, Rwanda, Sierra Leone, Darfur, South Sudan, central Africa, Yemen, Syria, Myanmar, Sri Lanka, Colombia, Guatemala, El Salvador, Afghanistan, Iraq, and many other regions and countries. They are the oppressed peoples stripped of their human rights by authoritarian regimes across the globe.  Millions are displaced or flee as refugees.  These victims risk being forgotten as governments understandably focus on the millions of people infected by novel coronavirus, the hundreds of millions losing jobs and incomes during the economic collapse, and the massive fiscal and monetary initiatives needed to help resurrect national economies. 

Nonetheless, the victims need not be abandoned as tribunals and truth commissions endeavor to hold accountable those responsible for the atrocity crimes that terrorized their lives. 

Next Generation: EU, the bold initiative by the European Commission recently for a large financial bail-out for southern Europe, is a refreshing turn in the road towards economic stability during the COVID-19 pandemic. Humanitarian aid agencies that assist victims of atrocity crimes and severe human rights abuses—survivors who struggle with physical and mental injuries and destitute poverty and malnutrition—have not been so lucky. They rely mostly on voluntary governmental contributions each year supplemented in some cases by philanthropic contributions from individuals and foundations.  The only thing that has changed since the pandemic began is the prospect of gutted budgets as governments turn their attention to the immediate and colossal crisis of economic survival.

Even before the pandemic, the funding gaps for humanitarian needs and reparations were glaring.  For example, the 2018 budget for the U.N. High Commissioner for Refugees (UNHCR) was $8.2 billion, of which only $3.5 billion was raised.  The U.N. World Food Programme had projected, prior to the pandemic, a $3.1 billion shortfall for 2020 after falling behind by $4.5 billion in 2019.  Now 2020 promises starvation on an epic scale. Doctors Without Borders had a funding gap of 72 million euros in 2018. Save the Children UK reported a decrease of 104 million pounds in funding between 2017 and 2018.  The International Committee of the Red Cross (ICRC), which is the guardian of the Geneva Conventions and on the front line of armed conflicts globally, had a funding deficit of 30 million Swiss Francs two years ago.  The funding shortfall for The Trust Fund for Victims of the International Criminal Court is about 6 to 7 million euros annually as victims seeking international justice await unfunded reparations awarded by judges. 

While reparations awards are supposed to be paid as a tangible admission of responsibility for the crimes of past regimes, and thus burden the government with that liability, in reality more funds are needed to cover the gap between actual payments and what is owed.           The Inter-American Court of Human Rights has a long practice of awarding reparations against Western Hemisphere member governments that are held accountable for serious human rights abuses.  But satisfaction in payment of reparations depends on the defendant government taking the necessary steps to appropriate funds for that purpose.  That challenge, sometimes unmet, now will become even more daunting.  Efforts in Colombia to finance reparations as part of the Peace Accords between the government and the Revolutionary Armed Forces of Colombia also have faltered badly.

The European Court of Human Rights awards damages in many of its cases brought by citizens of member States against their own governments.  Again, the actual pay-out is spotty and often of low priority for politicians committed to using appropriated funds for other purposes.

Reparations as penalties for the scourge of slavery have a long and largely unfunded history.  While governments and institutions, such as universities, built on the backs of slaves increasingly have explored and committed to reparation awards of varied types—pecuniary and other forms of remorse—there remain vast challenges to actually generate the necessary revenue.

Victim populations and funding shortfalls for the organizations seeking to assist them are certain to grow significantly in the years ahead, exacerbated by the pandemic’s fallout.  Money needed for trauma and mental health needs, which are enormous, is scarce and will only worsen with mental injuries compounded by the pandemic.  Autocratic and authoritarian-leaning governments as well as violent non-state actors can be expected to spawn repressive policies and armed conflicts that will generate additional waves of refugees and victims of atrocity crimes. 

Nothing will magically close the victim-centric funding gaps of tribunals, governments, and humanitarian organizations.  But the conventional practice of relying solely on annual voluntary governmental contributions and some charitable giving to support the missions of these institutions can no longer define the entire template of funding options.   Innovative thinking needs to rescue humanitarian organizations, tribunals, and the vulnerable populations they serve. 

There are solutions, however fragile right now.  For the last couple of years, momentum has been building behind “humanitarian investing,” namely utilizing the private sector and attracting “social investors” for profitable (though often less than conventional market rate) investment opportunities that serve humanitarian aims and scale the funds needed to pursue them.  Typically, social investors have invested in “social bonds” or “social impact bonds” that increase funding for such public needs as environmental, health, local criminal justice, and infrastructure priorities.  Banks and investment firms know the social investors who are interested in long-term investments for a social cause—prominently insurance companies and pension funds, university endowments, central banks and official institutions—and  know who else to reach out to as potential social investors. But they also show up on their own steam. The common parlance in the markets also identifies these entities as Socially Responsible Investors (SRI) or institutions focused on Environmental, Social and Governance (ESG) criteria in their decisions on how to invest.

Even during the pandemic, while the social bond market overall has tightened, large COVID-19 social bonds have been issued of enormous importance to the health of millions in Africa and Latin America.  On March 25 the African Development Bank marketed a $3 billion three-year “Global Fight Covid-19 Social Bond” to “alleviate the economic and social impact the pandemic will have on the livelihoods and Africa’s economies.”  This was the largest social bond ever issued and it was purchased by social investors within one day.  Then, on March 30, the Inter-American Development Bank issued a $2 billion five-year Sustainable Development Bond to support government and corporate responses to the public health, labor income, and business impact of the pandemic.  It too sold quickly with oversubscribed orders.

Lessons have been learned as the pandemic grew.  A seemingly preventive pandemic bond issued by the World Bank in 2017 was designed to confront prospective infectious diseases head-on with targeted funding for the 76 poorest countries that might come under siege some day.  But it flopped with high annual interest rates paid to investors and conditionality for pay out only after a pandemic swept through countries, proving itself as a financial instrument to be unwieldly and post-mortem, literally.  In the future, preventive pandemic bonds will need to be tailored to pay lower interest rates and disburse funds quickly enough to prevent the pandemic from spreading. 

Despite the immediate imperative of COVID-19, the challenge remains to turn social investors’ attention toward humanitarian needs where the metrics are also indicators of survival and basic recovery in the face of calamities.  Covering the funding gaps of struggling tribunals and humanitarian agencies may seem like a tougher pragmatic sell during the pandemic.  But that task is now more important than ever as the novel coronavirus aggravates the humanitarian crises already underway. 

The World Economic Forum, the World Bank, and the ICRC have spearheaded an ambitious initiative on humanitarian investing and, in collaboration with the Boston Consulting Group, released a White Paper in September 2019 that describes the game plan.  The document paints a grim picture for 80% of the world’s poorest people by 2030.  The existing framework for meeting critical needs will not suffice: “Protracted crises and increasing vulnerability are stretching mandates and resources so that traditional approaches to financing humanitarian-development efforts are not commensurate with the sharp increase in needs nor in a comprehensive strategy to address the underlying drivers of [fragility, conflict and violence. For example, the proportion of the UN-coordinated appeals that have gone unfunded rose from 15% in 2007 to 40% in 2018—a gap of $10 billion.”  

The White Paper proposes ramping up humanitarian investing as an idea whose time has come.  A number of objectives will set the pace: activating donors and financial institutions to “act as market catalysts for collaboration among stakeholders, develop a pipeline of investable opportunities, enable…further investment capital to follow,” promoting humanitarian investing as a real investment opportunity, expanding the concept beyond traditional humanitarian crises, and upgrading the readiness of organizations to act. 

Social bonds can be structured in different ways but each shares a common affinity for metrics that demonstrate the value of the enterprise, for that is what will tug at investors who find meaning in the social purpose but also are willing to take a risk.  Some examples: The front-loaded social bond requires rapid infusion of a large amount of funds for a social objective, such as purchasing and administering vaccines quickly for African populations, while several governments commit, with pledged monies raised from annual legislative authorizations, to repay the bond investors at a later date. 

The ICRC’s humanitarian impact bond issued in 2017 is a variant of the front-loaded social bond but of relatively small size—26 million Swiss Francs—that underwrites the building of three new rehabilitation centers in Africa. At the end of the bond’s five-year term, four European countries and the “la Caixa” Foundation will pay the ICRC funds destined for repayment of all or only a part of the principal of the bond to the social investors depending upon the outcome.  The better the results in terms of victims treated, the more these “Outcome Funders” pay in and thus the better the return for the social investors. 

There may be a long-term solution that could generate a relatively steady stream of revenue each year to help reduce the funding gaps undermining support for victim populations.  The amount of additional monies would not be huge, but at least the funding gaps would narrow. 

An endowment social bond, for which there is no obvious precedent yet, could be designed to generate a steady stream of revenue each year for, say, 20 or 30 years—a possible term of the bond.  The key would be for one or more governments, private foundations, and/or wealthy individuals to guarantee the bond so that social investors have confidence in buying the bond and can anticipate a profitable (though discounted) return.  The governments falling within the AAA, AA, and A categories of sovereign risk, and thus strongly favored by social investors as guarantors, would be taking on a contingent liability.

The difficulty has been that some prosperous nations spurn contingent liabilities for fear of burdening future leaders and parliaments with the risk, however remote, that the guarantee might be called.  But this attitude is antiquated and does not rise to the challenge of our times where relatively safe risks must now be taken.  Political and finance leaders need to break that mold for victims’ needs in the same spirit as the European Union just demonstrated with its unprecedented large and collective guarantees, to rescue European nations.

Two related initiatives should be immediately undertaken: 

First, governments, institutions, and financiers should take a fresh look, particularly while the pandemic diverts huge cash flows from national treasuries, at how significant funds can be raised innovatively on the social bond market, guaranteed by highly creditworthy governments, major private foundations, and caring billionaires, to help cover funding gaps for humanitarian organizations.  This could be a topic for the forthcoming meetings of the G-7 (hosted by the United States) and G-20 (hosted by Saudi Arabia).

Second, the World Bank should gather its wealthiest Member States by video conference to explore their interest in guaranteeing social bonds for targeted victim needs that could be issued by the World Bank, a regional development bank, or a private entity to cover the funding gaps jeopardizing the critical objectives of tribunals and aid organizations.  Imagine, for example, the World Bank, backed by the joint guarantee of several Gulf States, issuing a social bond that would meet at least a fraction of the dire needs of victims in Yemen’s catastrophic conflict.

The world is burdened with extraordinary risks these days, but reducing funding gaps to help victims of atrocities should not be mission impossible. 

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Courts & Tribunals, Featured, General, International Criminal Law, International Human Rights Law, International Humanitarian Law, Law and Sustainability, Organizations, Use of Force
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Julia Emtseva

Dear Mr. Scheffer, Thank you for bringing up these incredibly interesting points on social investment. I am also of the opinion that it is very important to find innovative ways of how to redress victims when governments are often reluctant to do it on their own and to pay compensations from their tight budgets. I would like to raise some concerns that appeared in my head while reading your post. In my view, there are too few guarantees and benefits for investors due to the above-mentioned state reluctance to even raise the question of reparations locally. Secondly, even if the model will be successful and investors will indeed invest, wouldn’t it compromise the legitimacy of reparation programs? Given that reparations often take place in the framework of political transitions, a private investor (private philanthropy or a company) could take advantage of the vulnerability of a transitioning state and with granted money ask for some services in return (what comes to my mind is, for example, sharing the natural resources). in 2007, Microsoft donated $100,000 to the ECCC and a few months later, they opened their first office in Phnom Penh. The question here is: do we have an international legal… Read more »