The current investigation into BHP Billiton’s activities in Cambodia and the recent conviction of Rio Tinto executives in China highlight the vulnerability of international mining companies to bribery and corruption.
The UK has been criticised in recent years that its bribery and corruption laws have lagged behind those of jurisdictions such as the US, but the UK’s new Bribery Bill has now passed through parliament and offences under the new act will come into force on a date to be determined by the Secretary of State for Justice, although this is unlikely to be before October.
The new corporate offence under the act will, however, come into force after this date.
The government has promised to issue guidance on the ‘adequate procedures’ defence relevant to this offence, at least three months before the corporate offence comes into force, setting out how companies should prepare for the introduction of the corporate offence.
Last year, however, the Serious Fraud Office (SFO) issued guidance on the baseline elements which companies should be putting in place to be able to call on the ‘adequate procedure’ defence, and companies should not be waiting to start implementing or revising their anti-corruption policies, compliance and training until the further guidance is issued.
Government has already indicated that the further guidance will be in the form of broad principles, with examples.
Meanwhile, during parliamentary discussion of the Bribery Bill, government representatives foreshadowed that the guidance would cover “the responsibilities of an organisation’s board of directors; the identification of a named senior officer with particular responsibility for combating bribery; risk management procedures; gifts and hospitality policy; facilitation payments; staff training; financial controls; and reporting and investigation procedures… the guidance will be designed with businesses of all sizes in mind”.
The new act will not apply retrospectively, and the current bribery law will continue to apply where any act or omission takes place before the new act comes into effect.
Bribery Act overview
There are four potential offences under the new Bribery Act:- Offering, promising or giving a bribe;
- Requesting, agreeing to receive, or accepting a bribe;
- Bribing a foreign public official; and
- Failing to prevent bribery on the corporate behalf (the ‘corporate offence’).
There is no upper limit to the fine that can be imposed on a company for failing to prevent corruption under the new act, and companies convicted of bribery may also be prohibited from tendering for government contracts.
Individuals convicted of bribery, including senior company officers, will face a maximum potential ten-year prison sentence and/or an unlimited fine.
Only companies that are registered in the UK or carry on business or “part of a business” can be liable under the corporate offence.
Most crucial, therefore, is not where the act of bribery occurs, but where the company conducts its business. Both foreign companies with no UK parent and foreign subsidiaries of UK companies can be liable if they carry on business or “part of a business” in the UK.
A company will be potentially liable for the acts of its employees, agents, contractors and intermediaries but also of its joint-venture partners – a wide potential liability.
The new law is particularly significant for extractives companies, many of which operate in some of the highest corruption-risk countries in the world, according to Transparency International’s 2009 Corruption Perceptions Index (CPI), which ranks countries on their perceived level of corruption.
Adequate procedures defence
The corporate offence of failure to prevent bribes is a strict liability offence. The sole defence available to a company will be to demonstrate, on the balance of probabilities, that adequate preventative procedures were in place. The term ‘adequate procedures’ is, however, not defined in the act and the procedures which will be ‘adequate’ for any particular company will differ, in their detail, according to the company’s size, industry and countries in which it operates.
The SFO has issued guidance on the adequate procedures it will expect of companies, and these include a clear statement of anti-corruption culture fully and visibly supported at the highest levels in the company, a code of ethics, an anti-corruption policy, anti-corruption training, disciplinary processes, a whistle-blowing helpline, and procedures for remedial action.
Given that the SFO’s guidance is general, relevant criteria in implementing each of the measures will be relevance and proportionality. The SFO has indicated that it will not expect the same detail and complexity of procedures from small and medium companies as those from large companies. Nevertheless, each of the baselines elements should be implemented, proportionate to a company’s scale of operations.
The SFO will look for a clear statement, fully and visibly supported at the highest levels in the company, indicating an anti-corruption culture. Measures to satisfy this may include a briefing to the board on the new act and its implications by the chief legal counsel, or a resulting statement by the board, endorsed by all members, supporting the new act and committing the company to an anti-corruption culture.
Such statements should be communicated both within the company and externally.
The presentation to the board on the act, its discussion and any subsequent presentations to the board on anti-corruption should also be recorded in the meeting’s minutes. If it is necessary to call on the adequate procedures defence, companies will be in a better position if they are able to produce evidence relevant to the board’s commitment.
The board may also seek to underline further the company’s commitment to anti-corruption by actively supporting the work of Transparency International and initiatives such as the Extractive Industries Transparency Initiative (EITI), the UN Global Compact and the World Economic Forum’s Partnering Against Corruption Initiative (PACI) which was launched by chief executives from the energy, mining and minerals and engineering and construction sectors in 2004.
Anti-corruption policy
Given the mining industry’s geographical diversity, the ethos of an anti-bribery culture will, for many companies, have to spread widely – to the periphery of a company’s operations and crossing cultural boundaries. A company’s ‘comfort zone’ may be in its corporate offices. However, it is at remote operations, where the vulnerability to corruption-risk may be the greatest.
There must, therefore, be strong and active communication on corruption-risk from the centre to operations. Operations should be involved in creation of the anti-corruption policy so that it reflects their corruption challenges which will be very different, for example, in remote Colombia, from London or New York, where the policy and training is likely to be created.
The SFO guidance lists a number of areas which it expects to see included in an anti-corruption policy. They are gifts and hospitality, facilitation payments, intermediaries, political contributions and lobbying activities.
However, in order to be comprehensive and therefore robust, an effective anti-corruption policy must address corruption-risks specific to the company and to the countries and cultures where it operates. For mining companies, in addition to the above-mentioned areas, an anti-corruption policy should include conflicts of interest, use of company assets, charitable donations, sponsorships, social and community investment and mergers and acquisitions.
Some of these areas can be more challenging to address than others.
An anti-corruption policy should address gifts and entertainment both offered, and received, making provision also for a series of gifts received over time. It must establish measures and country-specific monetary thresholds for the recording of gifts and entertainment.
In essence, the potential issue arising from gifts and entertainment is that individuals may prefer, or be perceived to prefer, those from whom they have received gifts and entertainment, to give them an ‘improper advantage’. In terms of reputational risk and fostering local support, it is as important for companies to be vigilant against the risk of perceived of corruption, as actual corruption.
Gifts and entertainment are one of the most interesting and culturally complex areas of corruption-risk.
In a significant number of countries, it is regarded as an insult to refuse a gift offered, for example, from a visiting delegation. Providing hospitality, meanwhile, is an important means by which companies can develop rapport with current or potential clients.
Integral to catering for these different demands is to put in place practical and proportionate measures to record and audit gifts and entertainment.
The policy may provide that all gifts received from delegations should be recorded and displayed in, for example, the company foyer or, with the donee’s agreement, auctioned for charity.
It can also provide thresholds and criteria for corporate hospitality such as meals over which business is discussed, without the attendance of spouses and family.
Under the new act, facilitation payments are illegal as there is no distinction between facilitation payments and other forms of bribe.
The SFO has indicated that it is unlikely to prosecute individual facilitation payments, though if payments made collectively add to a significant amount and if a company is readily furnishing facilitation payments as a means of doing business, it will likely prosecute.
In countries where companies often receive demands for facilitation payments, the SFO advises companies to document that the practice is occurring, and to seek meetings with the head of customs, responsible government ministers and embassies to explain why demands for facilitation payments are unacceptable.
The SFO has indicated that if a company can demonstrate that it has done everything short of stopping doing business in a country, the SFO may look favourably. Simply stating, however, that paying facilitation payments is necessary to do business in a particular country will not be enough.
A growing number of companies, including Anglo American, De Beers and Rio Tinto, have adopted a zero-tolerance policy on facilitation payments, supporting the new UK bribery law.
It is a reality that facilitation payments are likely to be one of the most challenging areas of continuing to business in countries where there is weak governance. However, there is early, though solid, evidence to suggest that a strong company stance against facilitation payments leads, over time, to a decrease and eventual cessation in demands.
In addition, there is a question whether exceptions should be made for facilitation payments made under duress – for example, where employees or their associates are threatened with violence or imprisonment.
The new bribery law does not provide exceptions for payments. However, the SFO’s prosecution of exceptional payments made under duress seems unlikely.
If a company includes an exception for payments under duress in its policy, the policy should clearly define duress, require immediate reporting of the payment to the relevant line manager and the company’s compliance function, ensure the circumstances around the payment are thoroughly documented and report the threatened violence or imprisonment to the authorities.
Documentation of the incident is important for the company to be able to produce evidence, if required, of the payment’s exceptional circumstances.
Conflicts of interest may also be a pertinent issue for mining companies which often operate in remote locations, becoming the hub of local community and commercial life.
It is not unusual for members of the same family or friends to be employed by the company or its service providers. A policy on conflicts of interest will help to normalise and to practically address such situations, removing embarrassment or perceptions of impropriety where conflicts of interest arise.
A conflict of interest is not, of itself, improper; it is often a reality of living and working in a particular community or industry. It is improper, however, if not reported.
Reporting a conflict of interest should lead to discussions as to how the conflict can be practically addressed and avoided. For example, where an uncle may be sitting on a panel assessing the application of his nephew’s company, it would be appropriate for the uncle to be substituted on the panel by a colleague who does not have a conflict of interests in the decision.
A company’s anti-corruption policy should not be a static policy, but, like a code of ethics, must be a living document, reflecting current corruption-risks and the company’s response.
The ongoing challenges of corruption as mining companies enter into new countries, as new technologies emerge, and as financial markets evolve, demands that an anti-corruption policy be monitored regularly and amended in response to emerging corruption challenges.
In addition, the SFO guidance looks to a statement of ‘individual accountability’ for acts of corruption.
The board’s statement and company’s anti-corruption policy and training should clearly set out individual responsibility for acts of corruption and the potential penalties, within the company and at law.
A further measure underpinning individual responsibility is to include in the contracts of employees, contractors, agents and intermediaries the requirement to abide by the company’s anti-corruption policy.
Anti-corruption training
The SFO looks to companies to implement “training to ensure dissemination of the anti-corruption culture to all staff at all levels within the corporate”.
Under the new Act, a company is potentially liable for the acts of its employees, agents, contractors, intermediaries and joint-venture partners. Therefore, it is in a company’s interest to ensure that its anti-corruption training is delivered not only to its employees but its contractors, agents and intermediaries and shared, as a resource, with its joint-venture partners.
Training to “all staff at all levels” sets a broad and demanding scope for the training.
However, given the nature of an employee or contractor’s work and their potential exposure to corruption-risk, it will be relevant and necessary for some personnel to receive more detailed and specifically focused anti-corruption training than others.
Appropriate personnel to receive specifically focused training are those in roles with responsibility for resources (financial or physical) and those in ‘front-facing’ roles such as supply chain, procurement, business development, exploration, human resources or government liaison, and where inter-actions with government and other companies involve potential corruption-risk.
The training should address general corruption-risks and those specific to the business and might usefully draw on employees’ experiences of risks they have encountered in their work.
It is important that provision of the training and attendees be documented thoroughly. A company may need to produce, as evidence of ‘adequate procedures’ that a certain employee had attended anti-corruption training.
Companies without an anti-corruption programme need to act now, as a robust programme will take time to implement.
Although the Bribery Act will not apply retrospectively, companies need to be prepared to show that ‘adequate procedures’ are in place, and that they are actively combating corrupt-risk.
A code of ethics
A code of ethics sets out the values and the principles to which a company is committed in the way it conducts its business.
In different companies, codes of ethics may go by various names, such as business principles or a code of conduct. Regardless of its name, what is crucial is that the code contains statements about the company’s business ethics and that these ethics support the board’s high-level commitment to anti-corruption.
The SFO guidance states the organisation expects a statement of “principles that are applicable regardless of local law or culture”.
The SFO’s guidance also expects companies to make “a commitment making it explicit that the anti-bribery code applies to business partners”.
The code of ethics should state that it sets the standards for the company, and by which the company expects to do business with others. This statement should be supported by practical initiatives to communicate the company’s code of ethics and anti-corruption policy to its business partners.
It is important that the code is an active, living document (available in a company as well as used and shared with business partners and supply chain) and that it is revised every three to five years, to take account of changes in the company’s business, areas of operation and the views of its stakeholders and customers.
For example, a commitment to responsible water conservation is, in the mining industry, of higher priority to the industry and stakeholders today than a decade ago.
Case studies
As a signatory to the United Nations Global Compact, De Beers has a ‘zero tolerance’ policy on corruption. In 2009, business leaders across the family of companies committed to ensuring that De Beers updated anti-corruption policy is clearly communicated and understood by every employee across the business.
The policy requires full compliance with national and international legislation and the disclosure of transactions and relationships that might give rise to corruption-risk.
The launch of the De Beers anti-corruption programme was prompted by developments in UK anti-bribery legislation, to ensure mitigation of relevant risks and to reflect De Beers commitment to the anti-corruption standards of the Responsible Jewellery Council (RJC).
The company’s anti-corruption training provides employees with practical, workshop-based, training on responding to corruption-risk situations.
Meanwhile, Anglo American’s Good Citizenship: Business Principles were refreshed in 2009. One of the company’s four key pillars is ‘business integrity’, which contains the commitment that the company is “implacably opposed to corruption”.
The company actively participates in the activities of organisations including Transparency International, the UN Global Compact and the EITI. Anglo American’s board adopted a detailed anti-corruption policy in 2009, published in 2010. The company has developed anti-corruption workshop and online training to be delivered during 2010.