Skip to content


Seeking Anti-Corruption Compliance in the Extractive Industries

By GAN Integrity (Updated )

The tragic mining dam collapses in Brazil earlier this month have turned the world’s view to the risks to communities of having mining sector activities nearby. As a recent Wall Street Journal article points out, large mining operators such as BHP Billiton and Rio Tinto have focused in recent years on worker safety, but pressures to improve productivity (potentially endangering employee and local community safety) remain, as do the inherent dangers of extracting raw materials from the earth.

The extractive industries (including mining as well as oil and gas) are subject to other intrinsic sector dangers linked to dealing directly with foreign governments, often at national, regional and local levels. As luck would have it, some of the most resource-rich countries in the world also happen to be those where effective governance is low and corruption risk is high—this is a recipe for potential bribery and anti-corruption disaster when negotiating concession contracts and licenses, paying taxes and royalties, and obtaining visas for workers.

Even where a company has procedures and controls to guard against corruption, those procedures and controls need to be operational and enforced. BHP Billiton recently learned this the hard way when it was penalized by the US Securities and Exchange Commission (SEC) for failing to maintain sufficient controls over hospitality it provided to government officials in connection with the 2008 Summer Olympic Games. In this case, the company had procedures and controls in place, but failed to implement them adequately through effective corporate communication and employee training.

Trend toward transparency

Governments are beginning to support transparency by requiring companies in the extractive industries to disclose payments to government bodies. The UK and Canada, for example, recently passed laws requiring certain companies in these industries to publicly report payments made to government bodies, such as: production entitlements; taxes; royalties; dividends; signature, discovery, and production bonuses; license fees; and payments for infrastructure improvements. Reports filed under both of these laws will be available starting in 2016.

The SEC’s attempt to issue similar rules was struck down by a US court in 2013. However, the SEC intends to soon revisit issuing extractive industry specific rules, and the Commission plans to vote on a new set of proposed rules by the end of 2015 and on final rules by June 27, 2016.

The idea behind this legislative and regulatory activity is that if companies are required to disclose their payments to government (and, ideally, if the subject governments also agree to disclose their payments received) the public will more easily be able to hold both companies and governments accountable. This is a primary motive of the Extractive Industries Transparency Initiative (EITI), which works with governments, companies, and civil society to promote openness regarding how countries manage their natural resources wealth. Thirty-one countries (mostly resource-rich countries in Africa) are currently compliant with EITI’s transparency standards, although—as we observe through recent legislative and regulatory activity—countries whose businesses invest in resource-rich countries are also beginning to come on board. However, as Ben Morgan, Joint Head of Bribery and Corruption at the UK Serious Fraud Office, explained earlier this year, despite the efforts companies (and governments) may make to establish and implement anti-corruption measures, “corruption-free mining is not a reality.”

So the trend line is clear: Companies in this sector will increasingly come under the law enforcement and regulatory microscope, from a variety of countries. To help conduct business legally and sustainably, the compliance departments within extractive industry companies will need to refocus on basic programmatic details, such as the design and operation of internal controls applying to travel and entertainment expenses—so as to avoid the SEC issues faced by BHP Billiton. More creatively, they may also want to consider working together with industry peers and independent third parties through collective action to encourage governmental authorities in high-risk geographies to act more transparently in their interactions with the sector.

Related reading

Join the E&C Community

Get the latest news from GAN Integrity in your inbox.

We respect your privacy. Your data will be kept confidential and will not be sold or shared with third parties. For more information, please see our Privacy Notice.