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Managing corruption risks within the African mining sector is a complex task and requires a robust compliance programme, with dedicated compliance personnel and an unwavering commitment to doing business ethically, as well as constant monitoring to stay on top of the risks.

In the mining sector, there are two key risks that mining houses have to guard against. The first involves a mine employee or its agent or a representative who may bribe a government official, thereby exposing the company to significant risk of regulatory enforcement. The second risk, which often significantly inflates the cost of doing business in a particular region, is that third parties may bribe mine employees to win lucrative appointments to provide services to the mine.  Unfortunately, in some regions of Africa, procurement and tender fraud is rife and extremely difficult, if not impossible to avoid. 

Managing enforcement risk

All mining houses must ensure that they have a functional and robust compliance programme which will withstand scrutiny by any regulator. Maintaining a robust compliance programme is costly, however, this pales into insignificance by comparison to enforcement penalties for non-compliance, which can run into hundreds of millions, and in some cases, billions of United States dollars. 

The Department of Justice and the Securities and Exchange Commission in the United States, are the two most active regulators in pursuing enforcement action against companies that pay bribes while the Serious Fraud Office in the United Kingdom is responsible for enforcement of the Bribery Act of the United Kingdom. Both of these sets of legislation are extraterritorial and can be used by those authorities to bring enforcement action against rogue companies that bribe, irrespective of where they may be located, if an association can be established with those jurisdictions.  

Entities that operate in, or are listed within those jurisdictions are obviously subject to these laws, however, regulators often resort to tenuous grounds to establish jurisdiction against companies that bribe. 

The United States government for example has used a payment made in dollars, or an email thread rooted through a United States-based email server, as a basis to establish jurisdiction against an offender.  

The risk assessment 

To ensure that a mining house has “adequate procedures’ to prevent bribery and corruption, compliance best practice dictates that the organisation should conduct a risk assessment every few years. This process (also known as a gap analysis) will assess inter alia the following:

  • Existing policies, procedures and controls to prevent corruption and test their effectiveness;
  • Tone at the top – management commitment to anti-corruption compliance;
  • Due Diligence – the screening of third parties (business partners, agents and intermediaries) as well as employee screening to ensure that only ethical partners and staff are appointed;
  • Anti-corruption training, frequency and adequacy thereof. It is also good practice to provide training to business partners on codes of conduct and anti-corruption policies; and
  • Processes to monitor the risks and to update policies and procedures against an evolving risk environment.

The risk assessment will also evaluate the various touch points that the mining house has with the government. One of the key bribery and corruption risks in the mining industry relates to government interaction and administrative procedures. These government interactions, which include licences, permits, concessions and environmental assessments, often create a bribery extortion risk as officials often use these interventions as an opportunity to demand payment or personal benefit. Health and safety audits can create similar bribe solicitation opportunities. 

Ensuring that engagements with government officials are well-managed, and are conducted on-site wherever possible, (rather than in restaurants or hotels) is well advised. As the industry transitions towards renewable energy and a low-carbon economy, increased focus on ESG will create further solicitation opportunities for potentially corrupt officials. Training and adherence to policies are critical when it comes to managing this type of risk. 

Ensuring that the organisation has a strong due diligence screening function is also important as very often third-party consultants are politically exposed, (“PEPS”) which places them in a high-risk category, and requires special risk mitigation procedures. One of these risk mitigation steps is the inclusion of robust anti-bribery and corruption clauses in contracts with third-party agents or intermediaries. 

Screening for anti-money laundering, anti-corruption, as well as sanctions compliance, is vitally important to all mining companies, particularly in the current conflict situation.

The procurement corruption risk

We have considered how to manage enforcement risk. It is however equally important to highlight the significant risk of third parties attempting to bribe the employees of companies operating in the mining sector.  Managing this requires strict adherence to policies which regulate the giving and receiving of gifts, coupled with regular vetting of gift declarations made by employees. 

Lifestyle audits 

An important proactive mechanism for mining houses to consider is the adoption of regular lifestyle audits, to identify employees’ living lifestyles that are significantly beyond their means. Random price checks as well as the monitoring of specially engineered or sole-sourced items are additional risk mitigation procedures for mining houses to consider implementing.

The lifestyle audit has an additional benefit, namely the identification of potential undeclared conflicts of interest. Mining houses should maintain a firm conflict-of-interest policy and should regularly adopt procedures to monitor compliance with the declaration of interest requirements in that policy.  Many conflicts of interest have been identified either through lifestyle audits or well-functioning tip-off hotlines which have exposed employees with interests in suppliers.   It is also important to note that conflicts of interest are identified within all levels of the organisation from senior executives to junior management. It is accordingly usually advisable to conduct lifestyle audits, including conflict-of-interest checks on all levels of management within the organisation.  

Managing corruption risk optimally not only makes good business sense but is an important survival strategy for all businesses. DM/BM

By: Steven Powell , Head of Department | Forensics 

[email protected]

Steven is the Director of Forensics at ENS. He has headed a multitude of forensic investigations in the mining sector in various jurisdictions on the African continent. 

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