Between a rock and a hard placeExploring how miners can reduce their exposure to corruption risk
Exploring how miners can reduce their exposure to corruption risk
By Rick Stapenhurst
May 16, 2017
Many Canadian mining companies that operate internationally find themselves between a rock and a hard place. On the one hand, the mining industry has been ranked by Transparency International as the fifth most corrupt industry globally, and many developing countries with mineral resources have high levels of corruption. On the other, the 1999 Corruption of Foreign Public Officials Act makes it illegal for Canadian companies and their officers to bribe foreign officials and reports indicate that the RCMP is ramping up investigations into alleged international bribery by Canadian companies.
Ongoing research funded by Canada’s Social Sciences and Humanities Research Council and carried out by professors at McGill University and the University of East Anglia in the U.K., together with researchers at the African Centre for Parliamentary Affairs in Ghana is looking at the “supply” and “demand” sides of corruption (i.e. the bribe givers and the bribe takers) in the mining sector in Africa. Preliminary results, after field research in Canada and West Africa, have identified ten “tensions” regarding corruption in the mining industry and suggest possible steps that can be taken by mining companies to reduce their exposure to corruption risk.
1) There is no standardized definition of corruption. Generally, host country civil society representatives and, to a lesser degree, government officials and legislators, defined corruption broadly as “the abuse of public trust for personal gain.” In contrast, corporate officials typically defined it more narrowly as “an illegal payment to a public official for corporate or personal benefit.”
2) A related issue is the costs of corruption. Host country informants in Africa tended to describe the costs of corruption in socio-economic and development terms; one said: “Through corruption the state is losing effectiveness, efficiency and resources in general.” By contrast, corporate respondents referred to the additional cost of the bribe itself. Typical was one respondent who stated that, “the time spent by management in attending to investigations, press inquiries or regulatory processes can distract management from the business of developing or operating a mineral property,” not to mention management time spent with corrupt bureaucrats.
3) There is often a discrepancy between official corporate policy against corruption and the necessity to give bribes at the local level, in order to do business in Africa.
4) While most Canadian mining companies recognize the need to assess corruption risk, few are actually doing so.
5) There is a substantial difference between the large and integrated mining companies and the junior exploration and development companies in terms of corporate policies and practice regarding corruption. But the data suggested that corruption is a problem for both large and small companies.
6) There is a gap between law and practice in host countries. Virtually all African countries have laws against corruption, but most fail to implement these laws.
7) Mining companies often see corporate social responsibility as a means to fight corruption and/or to promote local good will, while many African officials and civil society representatives see it as self-serving or even contributing to corruption.
8) Mining companies often do not know how to deal with local chiefs and governments and may not fully appreciate local customs and traditions, especially the traditional concept of paying (modest) tributes to tribal chiefs as a token of respect.
9) There is a problem with small-scale or artisanal mining. Early commentators, such as the World Bank, saw such mining as creating a social safety net and cash-generating alternative for local people in times of economic or environmental stress and as providing livelihoods for retrenched civil servants, teachers and others. In most countries, such mining is illegal and, in recent years has expanded greatly, with adverse environmental and safety concerns.
10) There is a multitude of stakeholders for every project yet a piecemeal approach to the problem. There are clearly two sides to corruption – the supply side and the demand side – and any serious attempt to tackle corruption must include a coalition of all the stakeholders involved (host and home governments, parliaments, civil society organizations and corporations) working to reduce the problem.
Mining companies need to take a more proactive stance against corruption. The incentive for many to develop anti-corruption compliance programs is the threat of investigation by the RCMP. Perhaps a better understanding of why corruption is, in the words of former World Bank President James Wolfensohn, “a cancer,” and how it distorts public policy making in host countries, weakens governance and democracy, and ultimately impacts adversely on the poor would be an additional incentive to reduce the supply of corruption. Many major mining companies already have relatively sophisticated compliance and ethics regimes but these need to be applied within their global operations. Juniors generally do not have such in-company anti-corruption programs. Hopefully the final results of this research will provide guidance on building anti-corruption policies and programs as well as assistance in developing detailed assessment frameworks and outlines for corporate compliance regimes.
Rick Stapenhurst is a consultant/advisor to the World Bank, a professor of practice at the Desautels School of Management at McGill University and an invited professor at Laval University. As part of his research, Stapenhurst and his colleagues are inviting Canadian mining companies which have operations in Africa to complete a short questionnaire the results of which will provide them a comprehensive overview before they do more detailed fieldwork in select African countries.
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