TORONTO (miningweekly.com) – The corruption risk management team at Canadian risk mitigation firm CKR Global often encounter apparent misconceptions among members of senior management within the mining community about the extent of liability when it comes to operations on foreign soil and third-party agents operating there on behalf of them, especially in developing countries.

The resource extraction industry as a whole was at extreme risk of bribery and corruption of officials, especially owing to the often isolated and foreign underdeveloped locations of the companies’ projects. But who carries the ultimate responsibility when the regulators come after a company?

CKR head of corruption risk management Margaret Wilkinson and co-head of corruption risk management at CKR Global Casie Neitzke recently dispelled the five most common corruption myths, stressing that the buck stopped with the board.

“Boards often do not fully grasp that they are wholly responsible for the company’s actions, even if the company itself was not involved in a corrupt action. They are also responsible for all actions [taken by] third-party entities in the service of the particular company,” Neitzke told Mining Weekly Online.

BRIBERY IS JUST PART OF DOING BUSINESS OVERSEAS

The global business landscape had changed drastically in recent years.

Corruption was commonplace in many emerging markets, but so was aggressive anticorruption enforcement. For example, some 180 000 officials had been disciplined so far in China’s ongoing anticorruption campaign, and a number of Western companies were sanctioned for bribery offences.

Wilkinson explained that anticorruption laws were also proliferating in developing countries and developed countries were pursuing companies for actions taken overseas.

Nongovernmental organisation Transparency International continued to rank miners operating in developing countries favourably if the companies demonstrated vigilance in the fight against corruption.

Wilkinson suggested that when engaging a third-party agent, there were several ways miners could ensure they adhered to international regulations. “Companies should, from the outset, lay the foundations to prevent corruption from taking place, by putting programmes and policies in place and regularly follow through on them.

“Companies should regularly monitor and stress-test these programmes to find their weaknesses and improve on them. Miners should also insist that third-party agents be open to regular audits to ensure compliance,” she added.

USING THIRD PARTIES REDUCES RISK

Neitzke pointed out that often times boards had been found to think that foreign companies were protected from liability by making use of third-party contractors, thinking that they could not be held responsible for dishonest actions.

In fact, most foreign corruption charges stemmed from business partners paying bribes on a company’s behalf, often without that company’s knowledge. Companies were expected to do their due diligence on third parties and ensure they played by the rules. 

In North America, investors had a distinct responsibility to conduct due diligence, Neitzke stressed.

The element of knowledge was brought to the fore in the case of Frederick Bourke, which established an important precedent demonstrating personal accountability.

Neitzke explained that Bourke, cofounder of the handbag-maker Dooney & Bourke, was convicted in July 2009 of conspiring to violate the US Foreign Corrupt Practices Act and lying to federal agents. After multiple failed appeals, Bourke went to jail for a year and one day and was fined $1-million. He was released in March.

The case came about when Bourke blew the whistle in 1999, exposing that at least one major investor had been defrauded. Instead, the tables turned against Bourke, with allegations including bribery in an attempt to privatise the Azeri National Oil Company, SOCAR.

“This fundamental case placed the burden of knowledge on a US national that invested $8-million in an offshore opportunity with a limited US nexus. It’s important to note that Bourke did not pay the bribes, nor did he authorise them,” Neitzke said.

REGULATORS ONLY GO AFTER BIG FISH

Another common misconception was that only the ‘big’ companies pay big fines and regulators only go after headline-making indictments.

However, all but one of the Canadian companies charged under the Corruption of Foreign Public Officials Act were small-to-mid-cap organisations.

Wilkinson noted that private companies were not immune to prosecution either. “Many investigations begin with a whistle-blower report and others are picked up as part of wider industry reviews. While larger companies like Siemens and SNCLavalin make the headlines, they represent a fraction of corruption charges,” she explained.

Wilkinson added that, as the headlines had shown, even large companies with anticorruption compliance programmes in place could fall afoul of regulators. “To assume that your company is safe because it only does business with large, well-known businesses would be a mistake,” she said.

Neitzke pointed out that there was no difference between big or small companies or their agents.

She suggested that companies could ensure that no incidences of corruption took place by investing in the training and education of third parties to help them understand the risks and liabilities associated with their actions.

“Ensure that a climate of zero tolerance is created and act immediately on offenders. Deploy extra scrutiny on high-risk invoices and follow up on any anomalies.

“Good anticorruption policies do not impede a company from operating normally,” Neitzke highlighted.

ONLY ACTIVE BRIBERY GETS PUNISHED

Some people were also found to think that should their companies never condone corruption, but one of their employees bribed a government official to move a deal along, regulators would come after the employee and not the company.

Wilkinson said they might be right, but that the regulators would also likely go after the company and its senior personnel for failing to prevent the bribery. “If you can not demonstrate that you did a reasonable job of mitigating corruption risk, you could be liable for someone else’s wrongdoing,” she stated.

Wilkinson explained that should a company acquire an overseas business and it emerged that years ago, under the previous ownership, bribes were paid to secure contracts, under the concept of ‘successor liability,’ regulators would hold the new owners responsible for corrupt practices of an acquired business.

“This can involve huge costs and underscores the importance of corruption-focused due diligence on all acquisitions.

“Sometimes buyers focus solely on the main aspect of the company they are acquiring, sometimes overlooking the small devils in the detail of peripheral subsidiaries, for which they will become liable,” Wilkinson commented.

ONLY BAD COMPANIES GET PUNISHED

Not true. While cases of intentional, complex bribery schemes were rare, the vast majority of companies that were punished for corruption violations did not have unethical or toxic cultures. They might have bought a business with historical issues, or might have been held liable for the actions of a third party or rogue employee.

Looking back on some of the largest corruption cases to date, those companies were now considered ‘poster children’ for compliance.

Neitzke warned against ‘rogue employees’. She said ‘good’ companies put themselves at risk when they were not actively engaged and following through on their policies. They often found themselves in hot water for being too lax.

“Conversely, those who actively follow through on their policies and find issues, only stand to gain by acting on the issues and enhancing their systems to ensure compliance,” she noted.