Combatting corruption abroad

FRAUD and corruption are now ranked among the top 10 business risks facing mining and metals companies operating overseas and if the situation is not addressed it will only get worse, says one anti-corruption group.
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Corruption Perceptions Index map (cropped) courtesy of Transparency International.

Brooke Showers

There are 200 Australian Securities Exchange-listed companies with operations outside Australia, making it very important for their investors to ensure bribery or corruption charges don’t bring their investments into disrepute.

The Australian federal government is seeking to improve laws covering bribery in light of the increasing number of companies operating overseas.

Anti-corruption group Transparency International said there were 144 new cases of corruption globally in 2011. The total number of cases prosecuted by 37 major exporters rose from 564 in 2010 to 708 in 2011.

A further 286 investigations are ongoing.

One in four business executives believed bribery by a competitor resulted in direct costs to their business in the past 12 months, according to a Transparency International survey released this month.

“We believe that unless people address the corruption risk, especially within the Organisation for Economic Cooperation and Development, then it’ll just get worse and it will become much more dangerous,” Transparency International chief executive Michael Ahrens told delegates at the AMEC convention in Perth last week.

“It’s not just the police which will get you,” Ahrens said. “Investors would worry if a scandal broke out in respect to a company they have a holding in, and whose damaged reputation may scare off everyone else.”

Transparency International created the Corruptions Perceptions Index which ranked 180 countries based on a range of global companies’ perceived levels of public sector corruption.

New Zealand was ranked as the lowest risk and Australia was ranked eighth.

The riskiest countries included Afghanistan, Somalia and the Democratic Republic of the Congo.

Popular mining destinations Burkina Faso and Indonesia ranked 100th, while Chile was in 22nd spot, Brazil was 73rd and South Africa was 64th.

“A lot of (worst) countries are places where Australian miners have gone in with their ears back and have been confronted by the strong demand to pay under the counter,” Ahrens said.

“That’s dangerous, not only for the investors and the operators and the executives, but for the rest of us.”

Ahrens said there was a bigger picture when companies were involved with bribery or corruption, apart from just a narrow self-interest.

He highlighted the huge difference between mining majors such as BHP Billiton and Rio Tinto, which avoided the bribery risks, and smaller companies which couldn’t afford the cost of compliance.

Some companies feared that by refusing to pay bribes they could lose their projects, but were not aware of the obstacles leading them down a slippery slope.

“Our attitude is, compliance may be costly, but try non-compliance,” Ahrens said. “Try what happens to you in terms of damage to your reputation in case you are caught out.

“Our job is to stop people getting complacent.”

Global advisory firm Ernest & Young recently put the issue of corruption into the top 10 risks for mining operations abroad over the next five years.

In 2008, corruption and bribery did not make it onto the Ernest and Young top 10 risk list.

“Fraud and corruption remains on this year’s risk radar due to the increased political risk we’ve observed in a number of key mining and metals companies’ investment destinations, and also increased regulation and enforcement activities,” Ernst and Young said.

To minimise damage, the advisory firm recommended companies gained an understanding of key anti-corruption and bribery laws, conducted a corruption risk assessment, designed an effective anti-corruption compliance program and incorporated an anti-corruption and bribery program into merger, acquisition and joint venture due diligence agreements.

This article first appeared in ILN's sister publication