Global Issues Series General Editor: Jim Whitman This exciting new series encompasses three principal themes: the interaction of human and natural systems; cooperation and conflict; and the enactment of values. The series as a whole places an emphasis on the examination of complex systems and causal relations in political decision-making; problems of knowl- edge; authority, control and accountability in issues of scale; and the recon- ciliation of conflicting values and competing claims. Throughout the series the concentration is on an integration of existing disciplines towards the clarification of political possibility as well as impending crises. Titles include: Berhanykun Andemicael and John Mathiason ELIMINATING WEAPONS OF MASS DESTRUCTION Prospects for Effective International Verification Robert Boardman GOVERNANCE OF EARTH SYSTEMS Science and Its Uses Mike Bourne ARMING CONFLICT The Proliferation of Small Arms John N. Clarke and Geoffrey R. Edwards (editors) GLOBAL GOVERNANCE IN THE TWENTY-FIRST CENTURY Neil Davison “NON-LETHAL” WEAPONS Nicole Deitelhoff and Klaus Dieter Wolf (editors) CORPORATE SECURITY RESPONSIBILITY? Corporate Governance Contributions to Peace and Security in Zones of Conflict Toni Erskine (editors) CAN INSTITUTIONS HAVE RESPONSIBILITIES? Collective Moral Agency and International Relations Moira Feil GLOBAL GOVERNANCE AND CORPORATE RESPONSIBILITY IN CONFLICT ZONES Annegret Flohr, Lothar Rieth, Sandra Schwindenhammer and Klaus Dieter Wolf THE ROLE OF BUSINESS IN GLOBAL GOVERNANCE Corporations as Norm-Entrepreneurs Annegret Flohr SELF-REGULATION AND LEGALIZATION Making Global Rules for Banks and Corporations Beth K. Greener THE NEW INTERNATIONAL POLICING Alexander Kelle, Kathryn Nixdorff and Malcolm Dando CONTROLLING BIOCHEMICAL WEAPONS Adapting Multilateral Arms Control for the 21st Century Kelley Lee HEALTH IMPACTS OF GLOBALIZATION (editor) Towards Global Governance Kelley Lee GLOBALIZATION AND HEALTH An Introduction Catherine Lu JUST AND UNJUST INTERVENTIONS IN WORLD POLITICS Public and Private Robert L. Ostergard Jr. (editor) HIV, AIDS AND THE THREAT TO NATIONAL AND INTERNATIONAL SECURITY Graham S. Pearson THE UNSCOM SAGA Chemical and Biological Weapons Non-Proliferation THE SEARCH FOR IRAQ’S WEAPONS OF MASS DESTRUCTION Inspection, Verification and Non-Proliferation Nick Ritchie A NUCLEAR WEAPONS-FREE WORLD? Britain, Trident and the Challenges Ahead Julian Schofield STRATEGIC NUCLEAR SHARING David Scott ‘THE CHINESE CENTURY’? The Challenge to Global Order Andrew Taylor STATE FAILURE Marco Verweij and Michael Thompson (editors) CLUMSY SOLUTIONS FOR A COMPLEX WORLD Governance, Politics and Plural Perceptions Marco Verweij CLUMSY SOLUTIONS FOR A WICKED WORLD How to Improve Global Governance Global Issues Series Series Standing Order ISBN 978–0–333–79483–8 (outside North America only) You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and the ISBN quoted above. Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England Self-Regulation and Legalization Making Global Rules for Banks and Corporations Annegret Flohr Peace Research Institute Frankfurt, Frankfurt, Germany © Annegret Flohr 2014 Softcover reprint of the hardcover 1st edition 2014 978-1-137-35955-1 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted her right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2014 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-1-349-47160-7 ISBN 978-1-137-35956-8 (eBook) DOI 10.1057/9781137359568 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. Für meine Eltern This page intentionally left blank Contents List of Illustrations v iii Acknowledgements i x Danksagung x ii List of Acronyms x v 1 Introduction 1 2 Industry Self-Regulation: Soft Rules for Corporations 2 2 3 The Framework: Legalization as Hard Rules for States? 3 8 4 A Brief History of Governance in the Financial Sector 9 0 5 Anti-Money Laundering and the Wolfsberg Principles 9 8 6 Legalization of Anti-Money Laundering 1 14 7 Environmental Safeguards and the Equator Principles 1 45 8 Legalization of Environmental and Social Safeguards 1 61 9 Conclusion: Patterns and Dynamics of Self-Regulatory Impact 1 93 Notes 2 09 Bibliography 2 13 Index 235 vii List of Illustrations Figures 1.1 Causal functions of self-regulation in international legalization processes 1 6 2.1 Delineating self-regulation from its neighbouring concepts 27 2.2 Variation in self-regulatory schemes 3 0 3.1 Substantive, institutional, and procedural legalization 42 3.2 A rational role for self-regulation in legalization 8 5 3.3 A constructivist role for self-regulation in legalization 89 7.1 Relationship of World Bank safeguards with project implementing companies 1 48 7.2 Relationship of IFC safeguards with project implementing companies 1 49 7.3 Relationship of the Equator Principles with project implementing companies 1 57 Tables 3.1 Operationalizing substantive legalization 5 5 3.2 Operationalizing institutional legalization 6 7 3.3 Operationalizing procedural legalization 7 9 6.1 Wolfsberg impacts on substantive legalization 1 24 6.2 Wolfsberg impacts on institutional legalization 1 31 6.3 Wolfsberg impacts on procedural legalization 1 44 8.1 Equator impacts on substantive legalization 1 73 8.2 Legalization of the World Bank Inspection Panel and the IFC’s CAO 180 8.3 Equator impacts on institutional legalization 1 82 8.4 Equator impacts on procedural legalization 1 92 viii Acknowledgements So this is it? Really? Forgive me if I have some trouble grasping that. This book – that first began as something completely different – has been with me for so long, I am not sure I know the world without it anymore. What a terrible thought. However, it is a wonderful thought that I can now finally say thanks. And even if saying thanks is light years away from doing justice to those I owe it to, I hope you will forgive me for profiting from this opportunity to the max. Let me start with the people who were most important to this project and more precisely, with the two without whom it could never have been done: My parents. I know they would all-out deny it but they taught me everything I needed to write this book. And in the course of writing it, they have helped me through the process so many times that even after thinking about it for days and days I do not have the words I’d need to thank them. Deep gratitude is all I have. Also for Stefanie Lux. I think we both doubt whether I would ever have gotten done with this if it hadn’t been for her genius and gener- osity. For that, and most of all, for making the very last weeks – that looked so dreadful from afar – an almost-fun experience, I will owe her forever. Or until she allows me to pay her back in kind, I am very much looking forward. On the academic side of things, I am deeply indebted to many great minds, most of all, to Klaus Dieter Wolf. He not only gave me much needed intellectual as well as mental support on countless occasions but also the time and freedom to take my own decisions and many opportu- nities to look left and right of my field, and of academia, in order to find my spot. I do not think academic supervision could ever be done better. Next on the list, I owe deepest thanks to Nicole Deitelhoff who – long before she so kindly accepted my last minute plea for advice – was a source of inspiration ever since I first met her. Her support, endlessly creative and kind, was indispensable to my last months of writing. The research results portrayed in this book rely heavily on insights from interviews with many experts from international organizations, ix