October 2013

President's notes

Lifting the curse

By Robert Schafer

The “Resource Curse” is the ironic circumstance by which communities and regions are left in a worse condition during and after mineral development and exploitation than before. This is typically a result of the illegal or improper diversion of the benefits derived from mining due to government mismanagement. Transparency is often the best cure for the “Resource Curse” because it will hold governments and trusted officials accountable to their constituents.

It is encouraging that the transparency movement is picking up momentum. Early this past summer, the Canadian government strengthened the Corruption of Foreign Public Officials Act by increasing penalties for bribery and helping authorities with investigations and prosecutions of bribery offences. Now citizens and permanent residents of, and companies organized in, Canada can be charged for bribery regardless of where it occurred or of the degree to which the action was connected to Canada. And soon there will be new reporting standards for the extractive industries that make payments such as taxes, licence fees and royalties to foreign governments reportable events. New regulations will also put an end to “facilitation fees” that were routinely made to a foreign public official to expedite or secure performance.

This growing transparency trend is likewise showing itself in other jurisdictions. A number of developing countries now have laws defining how the tax and royalty revenues are shared among federal, state and community coffers. For mining companies, publicly reporting the magnitude of these payments quantifies the economic benefits derived from local mineral extraction. For communities, reporting allows them to hold governments accountable for the distribution and use of the revenues collected. And more and more communities are asking governments for their fair share. For example, Peruvian mining communities are taking to the streets to demand their legitimate 50 per cent share of taxes paid by mining companies annually, which are designated for local and regional use. For investors, this push for greater openness is welcome because it further quantifies risk.

As CIM expands its reach in Latin America and West Africa, we have an essential part to play in sharing knowledge and experiences, as well as in improving practices. Lifting the “Resource Curse” will require a common effort that encourages ethical behaviour and supports best practices wherever CIM members are engaged.

Robert Schafer
CIM President

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