Unstable political climates, government corruption, and developing government policy and legislation are just a few of the challenges faced by Canadian mining companies operating in foreign jurisdictions. Many of the world’s mineral-rich areas are located in developing countries, where business practices are varied. As a result, such companies face increased risks related to violation of anti-bribery and corruption (AB&C) legislation, such as the Canadian Corruption of Foreign Public Officials Act (CFPOA) and the U.S. Foreign Corrupt Practice Act (FCPA).
The FCPA has been actively enforced in recent years. It is now common for FCPA enforcement actions to result in multi-million dollar fines and penalties. Any company operating in foreign jurisdictions is exposed to AB&C risks. However, AB&C risks are particularly relevant for mining companies. For example:
- Mining companies face a high level of government regulation, which generally means more interaction with government officials.
- The extractive sector as a whole, and mining companies in particular, have been the target of AB&C enforcement action. Mining companies have been investigated and paid significant fines and penalties.
- Significant M&A activity in the mining sector presents challenges regarding AB&C compliance. There is often limited time to complete due diligence, and AB&C risks can easily be overlooked.
- Local agents are often used in high-risk jurisdictions, which exposes companies to AB&C risks related to the actions of those individuals. Respondents to KPMG’s 2011 Global Anti-Bribery and Corruption Survey identified due diligence regarding foreign agents as one of their greatest challenges.
Mining companies with foreign operations need to develop and implement robust AB&C compliance programs. An effective program should set expectations, educate employees and provide deterrence in order to prevent violations. It should also incorporate periodic monitoring and reporting mechanisms to allow for quick identification and response to potential issues.
Such programs are founded on risk assessments, which must consider the AB&C risks associated with the industry, the geographies in which the company does business, the interaction with government officials and the company’s business model. An anti-bribery policy on its own is not sufficient to meet a regulator’s expectations. Instead, companies are expected to incorporate many factors and to have active, demonstrated support from senior management.
Some of the key factors of an effective compliance program include:
- ownership and responsibility for AB&C compliance. Responsibility should be clearly delegated and sufficient resources should be committed to fulfill the mandate.
- visible commitment from senior management is important in establishing a compliance corporate culture. Time and resources dedicated to periodic communication of policies and expectations is one way to demonstrate management’s commitment.
- training employees on the company’s AB&C compliance program. The compliance program will only be effective if people have a clear understanding of the policies and expectations, and their role in relation to the program.
- periodic monitoring such as compliance audits, whether conducted internally or by a third party service provider. This provides senior management with feedback as to the effectiveness of the program and also demonstrates senior management’s commitment.
Consideration should not only be given to the actions of employees, but also to those of third parties acting on the company’s behalf, such as agents, contractors and consultants. Processes should be established to evaluate, select and contract with third parties. Such processes should include due diligence to understand the third party’s background, to assess their ethics and integrity and to identify any relationships that may present a risk. Third parties should also be made aware of the company’s policies and expectations, and consideration should be given to obtaining representations and warranties from such parties.
AB&C considerations should also be built into M&A activity. It is important that an organization understand the target company’s AB&C risks. Experience shows that AB&C is an area that does not always receive attention when acquisition-related due diligence is carried out, sometimes with negative consequences.
The potential for violations warrants consideration. Mechanisms that allow for the reporting of suspected violations or improper activity on a confidential basis and that ensure an appropriate response to potential violations should be established. For an AB&C compliance program to be effective, employees must believe that violations will be taken seriously by management and will have repercussions.
Suzanna Schulz is responsible for KPMG
’s forensic practice in British Columbia. Her diverse practice includes conducting major financial investigations, quantifying economic losses and providing dispute advisory services. She also provides fraud-risk management and anti-bribery and corruption services, including investigations and proactive compliance related work.