Multinational law firm Herbert Smith Freehills (HSF) has raised concerns around Tanzania’s new integrity pledge for mining companies, questioning whether it meets international best practice.
Since July 2017, the Tanzanian government has introduced significant regulatory reforms to the mining industry.
Among the first of these changes was the enactment of important amendments to the Mining Act 2010, including establishing a new Mining Commission to regulate the industry, and introducing a chapter on local content, corporate social responsibility and an integrity pledge.
In July this year, the Minerals Minister issued regulations related to the integrity pledge, with mining companies afforded three months to satisfy requirements.
The regulations are aimed at encouraging good corporate citizenship in Tanzania’s mining industry.
The regulations are aimed at promoting integrity, accountability and proper management of anticorruption programmes.
CONCERNS
HSF says owing to the imprecise wording of the regulations, however, they risk being applied inconsistently. This, in turn, could frustrate the achievement of their laudable objectives.
Additionally, the indeterminate scope of the duties imposed under the regulations may also contribute to greater regulatory uncertainty and affect the rule of law, which could, ultimately, affect investor confidence.
The use of the term ‘pledge’ in the regulations appears inapposite. The Act defines the integrity pledge as a formal and concrete expression of commitment by a mineral right holder to abide by ethical business practices and support a national campaign against corruption.
HSF says this is consistent with the ordinary understanding of a pledge as an undertaking given voluntarily, rather than done under compulsion.
However, HSF notes that the Act’s operative provisions on the integrity pledge impose a mandatory set of binding obligations, no different in nature from any other obligations imposed by statute.
The Act obliges mineral right holders to comply with the pledge, which requires conducting mining activities with utmost integrity; maintaining insurance against damage to the environment, communities, individuals and properties; and refraining from any arrangement that undermines national security, undermines the country’s tax or other monetary systems, while being consistent with the country’s economic objectives, policies and strategies.
HSF points out that some of these elements are imprecise and warrant refinement, but, regrettably, the regulations provide no definitions for key terms, such as ‘utmost integrity’, ‘national security’ and ‘economic objectives, policies and strategies’.
“Similar to the requirements under the Mining (Local Content) Regulations, 2018, restricting the use of non-Tanzanian banks, the requirement for all earnings to be “received in and accounted for in Tanzania” is also likely to impose practical difficulties on mining companies, particularly those seeking financing from international lenders,” the firm explains.
The regulations impose a further range of obligations, such as to refrain from dealing with unethical companies and to ensure compliance with the integrity pledge by any person it engages with in undertaking any activity in connection with mining activities – which is defined to include activities outside Tanzania.
HSF says that while the Act aims the pledge at mineral right holders, the regulations cast the net far wider, imposing obligations on any contractor, subcontractor, licensee, or any other person conducting mining activities.
“These terms are not defined, so it is difficult to identify who is meant to be bound by the regulations.
“It is critical that all of these concepts are more clearly defined, so that they can be appropriately enforced by the authorities, and also so that mining companies (and anyone else affected) can understand precisely what they are expected to do, and not to do, especially considering the severe penalties imposed for noncompliance.”
The amended Mining Act provides that noncompliance with the integrity pledge constitutes a breach of a company’s mining licence, which could then be withdrawn.
HSF states that the regulations do not set out a procedure for determining whether a mining company has failed to comply, but simply empowers the Mining Commission to conduct investigations at any time, summon information and suspend or revoke licences.
The firm adds that the regulations prescribe more severe penalties than the Act itself. A contravention of the regulations carries a minimum penalty of ten years’ imprisonment or a fine of 100-million Tanzanian Shillings (roughly $44 000), if it takes the form of “malpractice”.
The practices related around corruption are already criminalised and penalised under existing laws. “The inclusion of these penalties in the regulations thus seems otiose, especially considering that ‘malpractice’ is not defined,” says HSF.
It also appears to exceed the authority conferred on the Minister by the Mining Act, which limits the penalties that may be imposed for a breach of any regulations to a maximum of 12 months’ imprisonment or a fine of two-million Tanzanian shillings.
“The penalties of licence revocation and property “takeover” (without due process) undermine security of tenure, which is key to investment in the mining sector. Additionally, the prospect of criminal prosecution and punishment, for undefined malpractices, may well exert a chilling effect on investment,” says HSF.
HSF recommends that the Tanzanian government rather hold mining companies to their existing commitments, such as to the International Council of Mining and Metals and the Extractive Industries Transparency Initiative, of which Tanzania has been a member sine 2009.
Alternatively, the government could look to the guidance of the African Minerals Development Centre and enter into an “African Mining Vision Private Sector Compact” with individual mining companies or with the Chamber of Minerals and Energy.
The compact comprises 12 reciprocal commitments, aimed at balancing the State’s development priorities with the industry’s commercial needs.
“By contrast, the regulations’ imposition of unilateral and open-ended obligations, on pain of criminal punishment, does not appear to strike an appropriate balance, rather, the regulations increase costs and complexity both for the government and the mining industry, and are likely to deter investment.
“A more effective approach would be to build on the existing frameworks of international best practice,” remarks HSF.