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Calgary Toronto Moscow Almaty/Atyrau Caracas Rio de Janeiro
Anti-Corruption in International Mining Projects: Practical Risk Management and Compliance Strategies
Date: November 29, 2010
Presenter: Janne Duncan, Partner, Toronto office
Tel.: +1 416 202 6715Email: [email protected]
Corruption in Emerging Markets
The global hotspots for corruption are developing countries:
Source: Transparency International, 2007 Corruption Perceptions Index
Mining: An At-Risk Industry
• Why is mining an at-risk industry?
– operates in countries where there is a perceived high risk of corruption or where corruption is viewed as acceptable local practice
– mining industry typically requires discretionary government-issued licenses, concessions, planning consent and permits which requires regular dealings with government officials to
– mining companies are often involved in joint ventures or production-sharing agreements with foreign governments or state-owned enterprises in high-risk countries
OECD Convention
Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention)
– establishes legally binding standards to criminalize bribery of foreign public officials in international business transactions
– adopted by the 33 OECD member countries and 5 non-member countries
Key Legislation in US, UK and Canada
US Foreign Corrupt Practices Act (FCPA)
UK Bribery Act, 2010[Not retroactive so prior legislation still relevant]
Canadian Foreign Corrupt
Practices Act (CFCPA)
Illegal to bribe a foreign official or political party with the intent to obtain or retain business
Illegal to bribe a foreign official, or accept a bribe, with the intent to obtain or retain business
Similar to US
Issuers (issued securities registered in US or files reports with SEC)- must keep accurate books and records of transactions- must maintain reasonable internal controls to prevent bribery
Strict (automatic) liability corporate offence of failing to prevent bribery by “associated person” – could include joint venture partners of the corporateDefense to show “adequate procedures” in place
None
Facilitation payments are permitted
Facilitation payments are NOT permitted
Similar to US
Voluntary disclosure None None
Key Legislation in US, UK and Canada: Jurisdiction – who is covered?
US Foreign Corrupt Practices Act (FCPA)
UK Bribery Act, 2010 Canadian Foreign Corrupt Practices
Act (CFCPA)
Issuers (issued securities registered in US or files reports with SEC) and Domestic Concerns (US Citizens, residents and companies) regardless of where offence
UK citizens, residents and companies regardless of where the offence occurs
No jurisdiction over Canadian citizens, Canadian residents or Canadian companies where act takes place outside Canada
Any non-US nationals or companies if it causes, directly or through agents, an act in furtherance of a corrupt payment to take place in the US
Any non-UK nationals or companies if an act or omission forming part of the offence took place within the UK
US parent companies can be liable for acts of foreign subsidiaries where authorized activity
Large and Increasing Penalties
• ABB/Vetco Gray (2004): $16.4 million• Titan (2005): $28.5 million• Vetco Gray (2007): $26 million• Baker Hughes (2007): $44.1 million• Willbros (2008): $32.3 million• Siemens (2008): $1.6 billion (US & Germany)• Halliburton/KBR Inc. (2009): $579 million• Daimler (2010): $185 million• Snamprogetti/ENI (2010): $365 million• Technip (2010): $338 million
International Finance Institutional Efforts
• World Bank Group
– project agreements incorporate Anti-Corruption Guidelines by reference
– failure to comply can result in sanctions including debarment
• European Bank for Reconstruction & Development; Inter-American Development Bank Group; Asian Development Bank; African Development Bank Group (together “Multinational Development Banks”)
– with European Investment Bank Group and International Monetary Fund, agreed in September 2006 - Uniform Framework for Preventing and Combating Fraud and Corruption:
– April 2010, the Multinational Development Banks signed an agreement to cross-debar firms
Questions to ask
• If company is doing a financing, how to respond to due diligence questions from investors? Investment bankers?
• If company is the target in an M&A transaction, how to respond to due diligence questions from a [US? UK?] bidder?
• If company is entering into a joint venture, how to respond to due diligence questions from a [US? UK?] JV partner?
• How to cover due diligence questions from investors, investment bankers, a bidder in an M&A transaction or a potential JV partner about suppliers? JV partners? Foreign subsidiaries?
Best Practices to Minimize Corruption Risk: Effective Compliance Programs
Effective Anti-corruption Compliance Program
Essentials• Tone from the top – establish the right culture• Clear and well known written policy• Regular training of staff and related parties• Strong internal controls• Consistent and fair enforcement• Monitoring and revisions when needed
- US Sentencing Guidelines Manual, §8B2.1
Compliance – Prevention is better than cure…
• Create and Maintain Clear, Practical and Accessible Polices & Procedures
• Business Conduct Guidelines– active and passive bribery– anti-money laundering procedures– policy on gifts and hospitality– mandate transparent documentation of
expenses– whistle-blowing procedures and
disciplinary consequences
Compliance – Prevention is better than cure…
Top Level Commitment• Senior personnel should be responsible for
compliance• Program and direct reporting relationship to the
Board
Regular Risk Assessment• identifies the likely and potential corruption an
organization faces • risk assessments should extend beyond the
company (i.e. transaction risk, country risk, partnership risk)
Compliance – Prevention continued…
Training Best Practices• policy only effective if understood and adhered to
– periodic training of all managers and employees– in local language or involving locals– use real life examples that are relevant to job
function• monitor attendance and track results• update training practices according to changes in
the law and in the business• ensure access and availability to materials• annual reaffirmation of understanding and
commitment to Business Conduct Guidelines• use of questionnaires recommended
Compliance – Prevention continued…
Strong Internal Controls• Financial accounting system to prevent illegal payments
and to detect questionable payments when made– controls for contract approvals, payments, and other
disbursements– maintain sufficient documentation– confirm that documented authorization procedures are
adhered to– scrutiny of large or unusual payments– identify and track government related payments – involve internal audit and other business managers in
ensuring compliance– periodic reviews and assessments of internal controls
Compliance – Prevention continued…
Best Practices For Engaging Third Parties• Research the business reputation of third party• Conduct reasonable due diligence• Require formal application process• Obtain a list of references and interview them• Require approval of third party contracts by
centralized authority at the corporate level• Include anti-bribery provisions in third party
contracts• Monitor third parties and require additional
periodic certifications and audit• Remove decision-making authority in “grey
areas” (i.e. travel; entertainment; gifts)
Compliance – Prevention continued…
Watch for red flags during DD:
• secret or nontransparent details• payment to third country, third
party, or multiple accounts• relationship between agent and
foreign official• lack of sufficient resources (i.e.
staff) or competence to perform services offered
• requests for payments in cash or "bearer" securities
• foreign official recommends agent
• cash transactions or “off-book” payments
• use of side letters or stand alone consultant agreements
• lack of written agreements• payment to entity run by
former governmental officials • third party is a shell company
or use of unnecessary intermediaries
• unusually high commission payment or large increase in anticipated fee
• large dollar travel, gifts, entertainment or gratuities
Compliance – Prevention continued…
Research the reputation of foreign business partners
• Use official sources (i.e. Embassies or Consulates)• Review all publicly available information• Review incorporation documents to assess ownership
and ensure no governmental interest [if possible]• Determine if the company has been subject to past
corruption-related investigations• Interview proposed partner’s clients and customers• Determine whether further investigation is warranted
Compliance 2 – Implementation
Reporting• Provide ways for internal & external
parties to report compliance violations• Ensure employee whistle-blowers, who act
in good faith, are not disadvantaged• Periodic audits of remote offices
Investigate• Whether reported violations or due
diligence of agents, JVs partners etc
Compliance 2 – Implementation
Discipline• Impose appropriate penalties for compliance violations, as
sanctioned by labour laws• Ensure awareness of disciplinary procedure during training
Consistent and Fair Enforcement• Ensure policies are consistently enforced
– no special treatment for certain clients or senior level executives, officers or directors
• Ensure appropriate discipline and remedial action is taken• Promptly investigate concerns raised, particularly anonymous
hotline complaints– will serve to prevent whistleblower claims– assists in establishing a culture of compliance and encourage
more internal reporting
Compliance 3 – Monitor, Review, Respond
Prepare Response to Potential Incidents
• Determine whether and what to investigate
• Determine who will investigate• Agree on investigation plan• Self-reporting
Who We Are
Calgary, Toronto
CaracasMoscow
Macleod Dixon LLP is a global law firm with offices in seven key centers of the energy industry: Canada (Calgary and Toronto), Venezuela, Colombia, Brazil, Russian Federation and Kazakhstan. Nine lawyers from Macleod Dixon have just been ranked as leading practitioners by Who's Who Legal, Mining 2010 - the highest number of any Canadian-based firm. PLC Which Lawyer has also just ranked Macleod Dixon as the #1 Energy firm in Canada and Venezuela for 2010.
Macleod Dixon LLP is a global law firm with offices in seven key centers of the energy industry: Canada (Calgary and Toronto), Venezuela, Colombia, Brazil, Russian Federation and Kazakhstan. Nine lawyers from Macleod Dixon have just been ranked as leading practitioners by Who's Who Legal, Mining 2010 - the highest number of any Canadian-based firm. PLC Which Lawyer has also just ranked Macleod Dixon as the #1 Energy firm in Canada and Venezuela for 2010.
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