The Alien Tort Claims Act may sound as if it's intended to regulate the intergalactic pastry business, but it's actually used in U.S. courts to litigate charges of serious human rights abuses that occur abroad. Such charges are heavy, and as an investor, it's one of the last things you want in your company's headlines.
Over the past 20 years or so, the act, or the ATCA, has been used in litigation involving firms such as Royal Dutch Shell
The punitive results of such trials have been mixed, but the risk to the reputation of a multinational firm facing an ATCA charge far outweighs any direct monetary damages. The Bush administration, and particularly the embattled attorney general, has proven rather unmoved by the torture status quo. For that reason, activists appear to have shifted the pressure toward private contractors. Ideally, such a looming PR nightmare would cause firms to monitor their potential complicity in abuses much more closely.
The takeaway here is not that market participants may be overlooking the business risks to government contract work. On the contrary, I think such risks are perennially priced into the shares of companies such as SAIC
Perceived ATCA liability is just one of many considerations weighing on the valuations of contractors. The argument can certainly be made that aversion to the sector has and will continue to provide an avenue for opportunistic investors to outperform the broader market. After all, defense contractors like Lockheed Martin
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