1. Anti-Corruption in International Mining Projects: Practical Risk Management and Compliance Strategies
Date: April 28, 2011
Presenter: Janne Duncan, Partner, Toronto office Tel.:

2. Why is mining an at-risk industry?
Mining companies operate in countries where there is a high risk of corruption or where corruption is viewed as acceptable local practice.
Need for government-issued licenses, concessions, planning consents and permits involve regular dealings with government officials and often involve discretionary consents and approvals.
Taxes and royalties paid to government officials under laws that are sometimes not transparent or subject to change depending on current perceptions.
Frequent dealings with customs and immigration officials.

3. Why is mining an at-risk industry?
Importance of building community relationships.
Frequent use of finder’s fees paid to third parties to find properties and help with governmental consents and approvals.
Joint ventures with third parties are common.
Contracts with third parties are common eg., road and mine construction and these third parties need government issued licenses, etc.
Frequent use of the army or police forces for security purposes.

4. Corruption in Emerging Markets
The global hotspots for corruption are developing countries:
Source: Transparency International, 2007 Corruption Perceptions Index

5. International Legislative Landscape
Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention) (1999)
establishes legally binding standards to criminalize bribery of foreign public officials in international business transactions that include foreign anti-bribery rules and a peer review system
focused on the supply side of bribery transactions
adopted by the 34 OECD member countries and 4 non-member countries including Canada
Canada has just completed its peer review
United Nations Convention Against Corruption (UN Convention)
over 80 members
focuses on supply and demand side

6. International Finance Institutional Efforts
World Bank Group
project agreements incorporate Anti-Corruption Guidelines by reference
failure to comply can result in sanctions including debarment
European Bank for Reconstruction & Development; Inter-American Development Bank Group; Asian Development Bank; African Development Bank Group (together “Multinational Development Banks”)
with European Investment Bank Group and International Monetary Fund, agreed in September Uniform Framework for Preventing and Combating Fraud and Corruption:
definitions for fraudulent, corrupt, coercive and collusive practices
sets principles and guidelines for investigations
promotes information exchange
April 2010, the Multinational Development Banks signed an agreement to cross-debar firms

7. Key U.S. Legislation
Foreign Corrupt Practices Act (FCPA)
Dodd-Frank Act

8. FCPA: Key Provisions ANTI-BRIBERY PROVISIONS
Unlawful to make or offer money or anything of value to "foreign officials" to influence any act or decision in order to obtain or retain business
Corrupt payments include direct and indirect payments through third parties
ACCOUNTING PROVISIONS
Companies that qualify as "issuers" must keep accurate books and records, and devise and maintain an adequate system of internal accounting controls

9. FCPA: Jurisdictional Reach
Anti-Bribery Provision
All U.S. companies (public or private) and individuals – at home or abroad
Non-U.S. companies (called “Issuers”) with securities listed on US exchanges or who file reports with the SEC
Officers, directors, employees or agents, at home or abroad, of any of the above
Non-residents and foreign entities where improper conduct occurs within the US
conduct may be as trifling as using US servers or wiring money through a US bank
US companies may be liable for acts of foreign subsidiaries, JV partners, and others parties deemed to be acting as agents or over whom they have control
Accounting Provisions
Issuers – public companies, their officers and employees

10. Dodd-Frank Act
“Resource extraction issuers” must disclose in their annual reports filed with the SEC information relating to all payments made during the financial year to a U.S. or foreign government for the purpose commercial development of minerals.
Payments made in each country, with respect to each project, on account of taxes, royalties, licensing fees, etc.
Apples to Canadian mining companies with securities registered or traded in the United States for FY ending after April 15, 2012.

11. Key Canadian Legislation
Canadian Legislation: Corruption of Foreign Public Officials Act (CFPOA)

12. Substantially based on the US FCPA / OECD Convention, except:
FCPA: Key Provisions
Substantially based on the US FCPA / OECD Convention, except:
the is no extra-territorial component (although Canada is under pressure from its most recent OECD peer review to adopt such a provision in order to comply with its OECD obligations)
there is no books and records component
few prosecutions although the RCMP have corruption units in Ottawa and Calgary
Canada has not adopted an equivalent to the US Dodd-Frank Act

13. Key UK Legislation
Bribery Act, 2010

14. Key UK Legislation: Bribery Act, 2010
Act comes into force July 1, 2011
Regulates supply and demand side of bribery
Creates a new strict liability offense for a “commercial organization” to fail to prevent a bribe being paid for or on its behalf, including by “associated persons”
The defense of “adequate procedures” is a complete defense unless senior management is involved
Guidance about what constitutes “adequate procedures” published March 2011

15. Bribery Act, 2010: Jurisdictional Reach
The Act applies to:
UK companies, UK citizens and UK residents regardless of where the offence occurs
Any non-UK nationals or organizations if an act or omission forming part of the offence took place within the UK
For the strict liability corporate offence for failing to prevent bribery, the act or omission may occur entirely outside the UK, if the corporation carries on a business, or any part of a business, in the UK
Guidance: A foreign company with securities listed on the London Stock Exchange/AIM will likely not be viewed as carrying on a business, or part of a business, in the UK

16. Legislation in Comparison
US - FCPA
Canada - CFPOA
UK - Bribery Act
Extra-Jurisdictional
YES
NOT YET (OECD peer review?
Books & Records NO
Facilitation Payments exception
Offence of failing to prevent bribery
NO (but “control person” theory)
Adequate Procedures Defense
NO but a strong compliance program is the “best defense”
NO but a strong compliance program would be the “best defense”
Liability for third parties
YES – direct and indirect payments
Yes
Yes – responsible for “associated persons”

17. Best Practices Guidelines
OECD Convention Guidelines
US Sentencing Guidelines Manual
The Bribery Act, 2010 Guidance about procedures which relevant commercial organizations can put into place to prevent persons associated with them from bribing (March 2011)

18. Effective Anti-corruption Compliance Program Essentials
Best Practices to Minimize Corruption Risk: Effective Compliance Programs
Effective Anti-corruption Compliance Program
Essentials
Tone from the top
Clear and well known written policy
Regular training of staff and related parties
Strong internal controls
Consistent and fair enforcement
Monitoring and revisions when needed
- US Sentencing Guidelines Manual, §8B2.1 18

19. Risk Assessment Ongoing Risk Assessment
Internal Risks – deficiencies in compliance policies
Country Risks – business in new jurisdictions
Transaction Risks – new business lines or methods (e.g. intermediary use)
Partnership Risks – due diligence of new partners, consideration of associations with prominent public office holders
Periodically engage outside professionals to test soundness of compliance program and recommend areas for improvement
Engage various parts of the business in compliance efforts (i.e. legal, finance, HR, Directors)
Audit compliance
Ensure compliance with compliance programs
Spot checks for adherence
Monitor effectiveness 19

20. Create and Maintain Clear, Practical and Accessible Polices & Procedures
Business Conduct Guidelines
active and passive bribery
anti-money laundering procedures
policy on gifts and hospitality
policy on charitable donations
policy on political donations
policy on extortion
mandate transparent documentation of expenses
whistle-blowing procedures and disciplinary consequences
Appoint a Compliance Officer
Require third parties with whom you to business to agree to comply with your Business Conduct Guidelines

21. Create and Maintain Clear, Practical and Accessible Polices & Procedures
Policies must be reasonable
zero tolerance should not overburden compliance staff
Establishing travel/entertainment/gift threshold amounts
Requiring pre-approval for routine and legitimate government payments
May be harmful to have stringent anti-corruption policies “on paper” that are not actually followed or enforced
policies should be designed to prevent key risk areas of the business
i.e. If industry utilizes many consultants who interact directly with government officials, then policy and training should specifically focus on this area
do business operations coincide with anti-corruption policy?
i.e. does sales incentive scheme support or undermine anti-corruption efforts?
i.e. does business plan allow realistic timeframes for the necessary bureaucratic processes?

22. Third Parties Best Practices For Engaging Third Parties
Research the business reputation of third party
Conduct reasonable due diligence
Require formal application process
Obtain a list of references and interview them
Require approval of third party contracts by centralized authority at the corporate level
Include anti-bribery provisions in third party contracts
Monitor third parties and require additional periodic certifications and audits

23. Third Parties Watch for red flags during DD:
secret or nontransparent details
payment to third country, third party, or multiple accounts
relationship between agent and foreign official
lack of sufficient resources (i.e. staff) or competence to perform services offered
requests for payments in cash or "bearer" securities
foreign official recommends agent
cash transactions or “off-book” payments
use of side letters or stand alone consultant agreements
lack of written agreements
payment to entity run by former governmental officials
third party is a shell company or use of unnecessary intermediaries
unusually high commission payment or large increase in anticipated fee
large dollar travel, gifts, entertainment or gratuities

24. Strong Internal Controls
Financial accounting system to prevent illegal payments and to detect questionable payments when made
controls for contract approvals, payments, and other disbursements
maintaining sufficient documentation
confirmation that documented authorization procedures are adhered to
scrutiny of large or unusual payments
identify and track government related payments
involve internal audit and other business managers in ensuring compliance
periodic reviews and assessments of internal controls

25. Reporting and Investigations
Provide ways for internal & external parties to report compliance violations
Ensure employee whistle-blowers, who act in good faith, are not disadvantaged
Periodic audits of remote offices
Investigate
Whether reported violations or due diligence of agents, JVs partners etc
Without an adequate Compliance Team, compliance is a ‘paper tiger’
Externally consult, as appropriate, attorneys or forensic accountants
Respect data protection and employee rights

26. Reporting and Investigations
Prepare Response to Potential Incidents
Determine whether and what to investigate
Separate, categorize and rank allegations
Look at who is the complainant, who is alleged to be involved and whether the allegations are material
Promptly investigate actionable claims
Document all investigation efforts
Determine who will investigate
In-house or outside counsel
Agree on investigation plan
To protect privilege
Order and priority of witness interviews
Process for gathering and preserving relevant documents
Determination of scope of investigation
Consider if self-reporting is appropriate
Decide whether the problem is minor and can be remedied or is material and it will be beneficial to self-report
Understand the scope and size of the issue(s) before reporting to authorities
Anticipate some of the strategy questions that will be asked it

27. Bribery involves huge risks:
Conclusion
Bribery involves huge risks:
Penalties that can run up to billions of dollars
Imprisonment for individuals
Risk of devaluing companies in transactions involving due diligence eg., by investment bankers; potential joint venture partners; potential acquirers in M&A transactions
Reputational risk