Insights

15/06/17

Mining overseas - do you know your ABCs?

Australian companies with overseas operations cannot afford to ignore the ever increasing reach of anti-bribery and corruption laws or to look the other way. Global trends suggest that Australian anti-bribery and corruption laws are likely to become more stringent and be enforced more rigorously. It is crucial that companies understand the risks inherent in their overseas operations and take steps to protect against prosecution.

Political commitment to combating bribery and corruption

Volatile commodity prices and shareholder pressure for growth over the past few years has seen increased activity in countries which pose a high risk of bribery and corruption compared to Australia.

Australian companies and individuals can be prosecuted for corrupt conduct which occurs overseas under Commonwealth laws. UK and US anti-bribery and corruption laws can also apply if there is a nexus to the UK or US.

As reported in our update: A Carrot or a Stick: Consultation Papers on Corporate Crime, the Federal Attorney-General’s Department has consulted on proposed legislative reform to significantly amend the Commonwealth foreign bribery laws and strengthen its prosecution powers. The proposed legislative reforms reflect a political commitment to improving Australia’s record of enforcement and is the result of continued pressure by the OECD for Australia to demonstrate its efforts in combating bribery and corruption.

In this article, we discuss how bribery and corruption laws can apply to your overseas operations and suggest some practical tips for mining companies operating in high risk countries.

Anti-bribery and corruption laws

Under the Criminal Code Act  1995 (Cth) (Criminal Code) any company incorporated in Australia, or anyone who is a citizen or lives in Australia, can be prosecuted for corrupt conduct which occurs overseas.

It is an offence under the Criminal Code to provide or offer to someone (directly or indirectly) a benefit that is not legitimately due to that person with the intention of influencing a foreign public official in the exercise of their duties in order to obtain or retain business or a business advantage. "Foreign Public Official" includes employees, contractors or officials of a foreign government department or agency, a government controlled company or public international organisation or members of the executive or judiciary of a foreign country.

Australian authorities can prosecute companies and individuals for such offences provided a sufficient connection can be established between the entity under investigation and Australia. Specifically, the conduct constituting the offence can occur wholly or partly within Australia or outside Australia where the person who is alleged to have committed it is an Australian citizen, a resident of Australia, or an Australian corporation at the time of the offence.

Defences are available in two circumstances:

  • where the conduct was lawful in the foreign public official's country (in the sense that it is specifically permitted or required by written law); or
  • where a payment is a facilitation payment made to expedite or secure the performance of a routine government action of a minor nature and the payment is of minor value. “Routine government action" excludes a decision about the awarding of new business, continuing existing business and appropriate record keeping must be demonstrated to rely on this exemption.

The proposed reforms, which draw on provisions found under the tougher laws of the US and the UK, would, if introduced, see the introduction of a new offence of failing to prevent foreign bribery, a broadening of the potential operation of the existing foreign bribery offences and the introduction of  Deferred Prosecution Agreements.  A detailed overview of the proposed provisions can be found in our update: A Carrot or a Stick: Consultation Papers on Corporate Crime.

Consequences of non-compliance

The consequences of bribery and corruption are serious and far-reaching and can include:

  • cost and management time investigating and remedying the problem;
  • criminal prosecution by regulators which may lead to convictions, fines and prison sentences for employees and officers. Under the Criminal Code the penalties for bribery of foreign public officials are: for individuals, a fine of up to AU$1.8 million or up to ten years' imprisonment; and for corporations, a fine which will be the greatest of AU$18 million, three times the value of the benefit received by the corporation and its related entities, or 10% of the annual turnover of the corporation and each of its related entities; and
  • damage to the reputation of the company, its share price and a risk of shareholder class actions and closer regulatory scrutiny of ongoing compliance with laws.

Identifying the risks

The key to companies implementing an effective anti-bribery and corruption programme is to first identify the risks specific to the organisation and then to tailor the development and roll-out of the programme accordingly.

Mining companies, by the very nature of how they operate, present particular challenges when managing bribery and corruption and operating in high-risk jurisdictions amplifies those challenges.

Guidance issued by the UK’s Serious Fraud Office to accompany the UK Bribery Act outlines some  key principles to help guide organisations in developing an anti-bribery and corruption framework. The guidance recommends assessing the nature and extent of internal and external risks. Commonly encountered external risks for mining companies operating overseas include:

  • Country risk: Many of the overseas countries or regions in which Australian mining companies operate such as Indonesia, South America and Africa are identified as posing a higher corruption risk by sources such as Transparency International's Corruption Perceptions Index, and therefore need a specifically catered framework policy.
  • Sectoral risk: The mining sector is regarded as having a higher risk of bribery and corruption than other sectors, given its interface with government agencies and complex contractual structures.
  • Transaction risk: The high number of interactions with government and partially or wholly owned state entities (SOEs) in the mining sector presents an opportunity for officials to request or demand bribes or facilitation payments. Government licences and approvals processes, required for exploration, development, construction and operation of a mine present multiple touchpoints with government officials.
  • Business opportunity risk: High value mine development and operation projects which involve many contractors and the need to award contracts to local companies (for practical, local content or social responsibility reasons) can create a higher risk of bribery and corruption as companies compete for such sought after contracts.
  • Business partnership risk: The use of intermediaries in transactions (for example the use of agents to deal with regulatory approvals and the use of sales and customs agents) and the need for consortia or joint venture partnerships arrangements (especially with local partners or SOEs) present a higher risk of bribery and corruption.

How to mitigate risks

Be realistic

Licences, permits and approvals can be held-up and customs processes delayed for refusal to pay a bribe or facilitation payment. Companies should consider building in additional time into projects to account for such delays.

Know who you are dealing with

The use of local agents by mining companies is commonplace and often essential in overseas jurisdictions in order to secure the rights to mine and for the sale of product into the market. Agents may on their own initiative make bribes or improper payments to attempt to conclude business arrangements.  It is essential to carry out detailed due diligence before appointing an agent. The use of political and integrity risk advisers is a good starting point for any due diligence in this area.

Contracts

All agency and contractor agreements should include appropriate anti-bribery and corruption warranties and termination provisions and jurisdictional issues should be considered when drafting such warranties. If an agent or contractor refuses or is resistant to the inclusion of such warranties, this is a red flag.

Monitoring

Controlling third parties in overseas jurisdictions can be challenging. Appropriate procedures should be put in place to monitor red flags and take appropriate actions. Requests by agents for payments to third party bank accounts or to accounts outside of the jurisdiction and for money on account where the purpose of the payment is unclear are examples of corruption red flags.

Training

Ongoing training for employees, contractors and agents who interact with government officials will provide individuals with the tools for how to deal with challenging situations and the confidence that their approach is backed in the company from the top-down. 

Corporate social responsibility initiatives

The implementation of such initiatives needs to be done with care and in accordance with a clear governance framework, especially where they are set up at the request of or in partnership with government agencies, where the risk of misappropriation is higher. Detailed due diligence should be carried out on any trusts, funds or charities involved to ensure they are genuine and independent and controls, checks and balances implemented to ensure that any money donated is used in accordance with the purpose of the initiative.

Gifts and hospitality

Companies should know what the local law is in relation to corporate hospitality and what recipients are permitted to accept it.  Corporate hospitality should be for legitimate business purposes and should be properly recorded to avoid any perception of improperly attempting to influence decision makers. Additional caution should be exercised during any government bid, tender or application process.  If there is a nexus to the UK, remember that facilitation payment exemptions may not apply.

Implementing an anti-bribery and corruption framework

Implementing an off the shelf governance framework to manage the risk of bribery and corruption will likely not be effective, especially for companies operating in high risk overseas countries. Carrying out a detailed risk assessment, developing a tailored framework and embedding it in an organisation is a significant undertaking, but one which you cannot afford to ignore.  

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