Brazil’s Public Ministry of Labor (MPT) has formally summoned German carmaker Volkswagen for an administrative hearing following reports that the company benefitted from slave labor in the 1970s and 1980s in Santana do Araguaia, in the State of Pará, Brazil.
The hearing will take place June 14 after the German newspaper Sueddeutsche Zeitung and broadcaster NDR published reports during the weekend revealing the carmaker was being investigated for alleged human rights violations.
A cowboy adventure in Brazil?
An investigation was opened in 2019 after printed documentation was submitted to the MPT by Father Ricardo Rezende Figueira, coordinator of a research group on slave labor at the Federal University of Rio de Janeiro (UFRJ).
The facts reportedly took place on the Vale do Rio Cristalino Farm, known as Volkswagen Farm, in Santana do Araguaia, owned by Companhia Vale do Rio Cristalino Agropecuária Comércio e Indústria (CVRC), a Volkswagen subsidiary.
To most of us, it may sound rather strange that a car maker manages a farm, but as it turns out the car giant decided to invest in high-end cattle ranching in Brazil during its period of military dictatorship (1964-1985).
For Volkswagen, the farm was reportedly a foot in the door into the meat business. The offer to buy and develop the area came from Brazil’s military dictatorship. The carmaker hoped for a success story, a story of a successful entry into the meat business. There were also tax breaks.
The work however is alleged to have largely done by slave labor. As per the German media, the carmaker is now facing legal action in Brazil over allegations of rampant human-rights violations at this large farm in the Amazon rainforest basin in the 1970s and ’80s. And the allegations are rather chilling.
The lead prosecutor on the case, Rafael Garcia, told AFP that investigators had collected depositions from hundred of victims who were lured to the farm with false promises of lucrative jobs, then forced to cut down the jungle under grueling conditions against their will to make way for Volkswagen’s cattle ranch, which became the biggest in the northern state of Para.
Temporary workers are said to have been shot, beaten and tied up when they failed to escape. Even seriously ill, they are said to have been forced to work at gunpoint and humiliated. Witnesses describe, among other things, how workers were forced to put guns in their mouths, and how minors were held against their will on the farm. A mother testified how her son succumbed to injuries sustained during the outbreak of violence, while other workers are said to have disappeared.
“It was a form of modern slavery,” said prosecutor Rafael Garcia in Rio de Janeiro. “VW obviously not only accepted this form of slavery, but also promoted it – it was simply cheap labor,” said the prosecutor.
“Workers who tried to escape were beaten, tied to trees and left there for days,” he said.
“Those who tried to slip into the forest never came back — there were simply stories that they had been killed. Workers were systematically, physically abused.”
Armed guards reportedly kept violent watch over the farm’s workforce that prosecutors estimate numbered in the hundreds.
“One worker tried to escape, but the gunmen caught him. As punishment, they kidnapped his wife and raped her,” it says, citing three witness’ testimony.
“Another worker tried to flee and was shot in the leg. Yet another was left bound and naked.”
Garcia said a task force of investigators had spent three years assembling evidence in the case, after the local Catholic priest came forward with horrifying accounts of abuse at the property he had compiled over the years.
The workers were kept in “debt-slavery” by being forced to buy food and supplies from the farm store at exorbitant prices, and some died of malaria with no access to medical care, Garcia said.
Prosecutors have summoned Volkswagen for the initial audience, where they will attempt to reach a settlement, he said. If that fails, the company could face charges.
In 2020, Volkswagen agreed to pay 36 million reais (approx. $6.4 million) in compensation for collaborating with Brazil’s secret police during the dictatorship (1964-1985) to identify suspected leftist opponents and union leaders, who were then detained and tortured.
The German company in response to the allegations said: “Volkswagen do Brasil reinforces its commitment to contribute to investigations involving human rights in a very serious way. The company will not comment on the matter until it has clarity on all the allegations.”
China Human Rights Abuses?
The German carmaker has likewise been accused of carrying out human rights abuses in China.
Unlike several major multinationals who ended their operations in Xinjiang following US claims that China is committing “genocide” against the Muslim Uyghur minority, VW boss Herbert Diess said in a recent interview with Handelsblatt that the joint-venture partner SAIC Volkswagen would not close its factory there, because the “small factory” was economically “insignificant”, and VW’s presence in China “has a positive impact”.
The criticism of the carmaker over its continued presence in China comes shortly after the release of the “Xinjiang Police Files” which document the sheer scale and brutality with which the Chinese state reportedly oppresses the Uyghur people. Beijing has repeatedly denied any mistreatment of Uyghurs. China is accused of forcing millions of Uyghurs into internment camps where they are forced to learn Mandarin and adopt a secular, pro-Communist Party outlook. Beijing describes the alleged detention camps as vocational training facilities.
Diess claims, however, that VW makes sure that its labor standards are abided by and that cultural and religious differences are respected.
He added that due to the company’s history, VW takes the issues of human rights and freedom of speech seriously. Volkswagen was founded during the Nazi dictatorship under the patronage of Adolf Hitler.
“Of course, we disapprove of what’s happening [in China],” he told Handelsblatt. “If we had evidence of wrongdoing at our facility there, we would take drastic action against it.”
Last week, Volkswagen said it would pay £193 million ($242 million, 226 million euros) in an out-of-court settlement to claimants in a British lawsuit over its 2015 diesel emissions tests cheating scandal. A separate contribution toward the claimants’ legal costs and other fees will be made by the company.
A class action was brought on behalf of some 91,000 claimants in England and Wales but Volkswagen settled out of court, avoiding a lengthy, potentially costly trial and any appeal.
In 2020, Volkswagen AG completed a three year independent compliance monitorship under agreements with U.S. Authorities, with the carmaker claiming “Volkswagen is a better organization today than it was three years ago.”
In 2017, Volkswagen agreed to plead Guilty and pay $4.3 Billion in Criminal and Civil Penalties ( $1.5 Billion of which was a settlement of Civil Environmental, Customs and Financial violations). Six Volkswagen executives and employees were also indicted in connection with Conspiracy to Cheat U.S. Emissions Tests.
The Risks of ESG Fluff
In a time where Environmental, social and governance (ESG) compliance has taken center stage in the Court of Public Opinion, it is important to remind the reader of the risks of breaking ESG promises.
While companies may once have felt safe hiding behind their statements and PR “fluff,” they now have investors, employees, partners, regulators, customers, and insurers scrutinizing their ESG and corporate citizenship statements. In other words, there are now hefty costs for empty puffery.
The reputational damages are no longer limited to securities and derivative lawsuits or compliance fines. Failures to fulfill ESG commitments (including environmental damage, and human rights violations) can result in a wide range of consequences at the hands of different stakeholders, including loss of sales, loss of employees, executives liability, vendor credit adjustments, eye-watering verdicts, regulatory action, debarment, and the loss of social licenses to operate.