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Collusion, price fixing flagged as potential problem areas for mining sector

9th September 2016

By: Donna Slater

Features Deputy Editor and Chief Photographer

  

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Collusion and price fixing, as well as cartel behaviour, are on the increase and may soon affect role-players in the mining industry, if they have not done so already, professional services firm BDO South Africa mining audit partner Servaas Kranhold has warned.

“In the last few years, we have seen multiple companies across all sectors settling with the Competition Commission – from listed to multilisted companies. “Construction is the sector that readily springs to mind, particularly if we refer back to the tender process around [infrastructure related to] the 2010 FIFA World Cup; the bread price-fixing saga of Tiger Brands is another prominent case,” he states.

As recently as last month, Kranhold highlights, the commission's investigations into, and prosecution relating to, alleged price fixing by ArcelorMittal South Africa were finalised when the steelmaking giant agreed to pay an administrative penalty of R1.5-billion over three years.

Kranhold says it almost seems that, in some cases in the business community, collusion is “second nature” and even integral to companies’ business strategies.

He also states that South African Airways is under significant pressure from the Competition Commission concerning the buying and/or selling of aircraft, as well as collusion related to ticket prices in the aviation industry.

Therefore, Kranhold raises the possibility that mining companies collude around resources, in terms of when to sell into the market and pricing. “I believe that we will be hearing and seeing more from the Competition Commission concerning the mining sector soon.”

However, he says, as an auditor, he cannot help but look at the recent cases of collusion and wonder: “What were the audit committees, board committees and the corporate governance processes at those companies?” He also wonders why, after stories about collusion and price fixing emerged, there has been no replacement or “sacking” of the decision-makers behind these practices.

“Surely, unethical business decisions are not [issues] any organisation wants to be known for and it takes a special kind of personality to be ‘collusion’ inclined, so where is the change? “A fine means nothing when the company has reaped far more in profits from the collusion than the fine,” he says.

Future Outlook
The difficulty from an auditing perspective, says Kranhold, is that there is not always an audit trail to follow regarding collusion, as these discussions usually take place outside normal business discussions. As such, he notes that these conspiracies are, by nature, secret and difficult to detect.

However, he points out that there could be some reprieve in July 2017, when the final amendments to the International Ethics Standards Board for Accountants (IESBA) – relating to responding to noncompliance with laws and regulations – comes into effect.

This board could possibly reduce the potential breaches as these standards will apply to all categories of professional accountants, including auditors, other professional accountants in public practice and professional accountants in organisations, including those in businesses, government, education and the not-for-profit sector. It will address breaches of laws and regulations that deal with matters such as fraud, corruption and bribery, money laundering, tax payments, financial products and services, environmental protection and public health and safety.

Among other matters, he says, the amended sections of the standard provide a clear pathway for auditors and other professional accountants to disclose potential noncompliance with laws and regulations to the appropriate public authorities in certain situations without being constrained by the ethical duty of confidentiality. It also places renewed emphasis on the role of senior-level accountants in businesses to promote a culture of compliance with laws and regulations, and prevention of noncompliance within their organisations.

Although the IESBA will only apply to certain professionals, Kranhold notes the amendments to the existing standard could result in more accountability on management in the future. “Only time will tell.”

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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