JOHANNESBURG (miningweekly.com) – Insufficient attention is being paid to the potential extortive elements that lurk in the background of mining projects in countries where discretionary officialdom predominates.
Corruption is invariably cited as the biggest inhibitor of the development of Africa.
But extortion is another significant constraint and this is how it happens, KPMG director forensic Déan Friedman tells Mining Weekly Online in a video interview (see attached).
Goods for a mining project arrive at the border post and all legislative and customs requirements have been meticulously met.
The container should be cleared, but suddenly there is a hold up.
The customs official wants to generate something for himself out of nothing.
Authority is abused and the container is seized until a benefit is paid over to the official.
Because the goods may be urgently needed to avoid expensive delays, official coercion wins the day.
“That’s a classic extortion scenario,” Friedman points out.
Such scenes can be multiplied many times over during the course of a mining company investing in countries where there is a discretionary environment – and Africa has its fair share of those.
“Often we say that’s corruption. But in the background there’s this extortive element to it and I don’t think that we pay enough attention to that when we talk about the mining world in Africa or, if we decouple it from Africa, in a discretionary environment where we often put up mines,” adds Freidman.
The simple advice is always do not be coerced into paying, but in the real world, that is often easier said than done.
“We’ve found with our clients that when they are able to have good insight into the environment where they have to operate, particularly when it is a discretionary environment, good insight into what is to be expected enables them to make better decisions,” he adds.
Once able to make the better decisions, potential risks can be managed.
“You want to have a better plan when you go into a discretionary environment. That gives you the best opportunity to mitigate the risk of it happening.
“You will never be able to eradicate a risk of it happening. It’s not only a criminal problem. It's a social problem that’s sitting at the back of it as well,” he says, adding that education and the institutionalisation of values reduce the extortion risk.
“When you are building a mine, you don’t have the benefit of saying you want to build the mine in the middle of New York. Knowing what to expect and being able to plan accordingly to mitigate the risks before they happen is the best solution for that,” he adds.