Extractive (incl. oil & gas), Mining, Sectors - Written by on Sunday, February 5, 2012 13:16 - 1 Comment

Mining sector on SFO radar…again.

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Last week the Daily Telegraph reported that a file on Pathfinder Minerals has been passed to the SFO by the City of London Police. The Daily Telegraph reported that the notification followed a report by a disgruntled former Director and Mozambique big shot General Jacinto Veloso.

There are parallels with stories swirling around Eurasian Natural Resources Corporation (ENRC) and an ENRC internal investigation which the SFO is reportedly interested in.

Whatever the truth in the two stories they serve as a useful reminder of the inherent risks the Mining Sector.

The extractive industry, in particular oil and gas, has been subjected to the lion’s share of enforcement activity in the context of international bribery.

While the mining sector itself has not been subjected to similar scrutiny natural resources are often to be found in some of the most challenging environments from a corruption perspective.

In December we ran a Mining Sector masterclass.

The Masterclass highlighted fundamental issues.  In particular the session highlighted that junior mining companies face particular risk.

While both junior and senior mining companies will likely operate in risky territories senior mining companies are often present in more developed markets where corrupt business practices may be less prevalent and the established brand name of the company may deflect approaches. They will usually have sophisticated compliance regimes, which use training and early warning to prevent issues from arising.

On the other hand, junior mining companies may operate in riskier markets where their size makes them more vulnerable to demands for bribes.

A couple of questions were raised during the session and we published the Questions and the Answers, in our Ask Barry & Richard column here entitled: Essential Q & A for the mining sector.

To avoid problems there are a couple of simple, golden, rules:

  • Do not make payments to someone (or favour them in any other way) if you know that this will involve someone in misuse of their position.
  • Do not misuse your position in connection with payments (or other favours) for yourself or others.

While Corporate Social Responsibility  (CSR) (offset) is an important part of many mining companies’ operation strategy projects should be carefully scrutinised to ensure that they do not disguise something more sinister.

This will extend beyond due diligence into the scheme itself.  A new school in a deprived area mandated by the local government might appear innocent.  However, if the construction of the new school will be undertaken by a Minister’s construction company then this may give rise to significant concern.

Tips to manage risk

Diligence. Diligence. Diligence.

As is the case in any arrangement where a business will assume risk due diligence is critical, this includes assessing the risk posed by the particular arrangements on macro and micro scale.  In addition to establishing the risks posed by the country and sector generally – detailed diligence into those with whom it is proposed to deal is vital.

Practical & contractual safeguards

Mining businesses should ensure that they have visibility over their service providers.

They should also consider which practical and legal steps to take to address and reduce risks to an acceptable level, including what steps to take to manage third party risk.

In addition to contractual safeguards mechanisms for policing the arrangement will be necessary.

From a practical perspective risks can often be reduced by rotating representatives through projects and ensuring that there is sufficient oversight at a group level.  Financial and other controls will be important.

In the meantime, with the mining sector being brought to the attention of the SFO twice in as many months all mining companies should take steps to ensure that their anti-bribery policies and procedures bear scrutiny and that they are properly implemented.

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High Tide: From Closing An Embassy To Softening An Export Ban | Rishwat – Campaign against Corruption in India
Feb 21, 2012 3:18

[…] of FCPA resources, and writes at KYC360 about intellectual property rights. Thebriberyact.com sees the mining sector once again on the radar of the U.K. Serious Fraud Office. Mike Volkov warns of the danger of […]

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