The jailing last year of four Rio Tinto iron ore employees in China on charges of bribery and stealing state secrets opened a lot of eyes to the risks of doing business inside the borders of the Asian dragon.
Rio sacked the employees, including Australian citizen Hu, arguing their illegal activities were conducted “wholly outside” the company’s anti-corruption systems.
Case closed, apart from the fact that Rio can’t afford another Stern Hu episode any time soon.
So the miner is cranking up efforts to combat corruption, including an increasingly popular confidential employee hotline, according to Rio’s annual report.
“Speak-Out”, an independently managed whistle-blowing exercise, proved a big hit with Rio employees in 2010, with 434 calls logged over the 12 months, up from 244 in 2009.
Of the new issues raised, 47% resulted in action being taken in relation to the reported issue, Rio said.
Personnel matters dominated, but there were also two calls on bribery and corruption, nine on conflict-of-interest issues and another nine on theft and fraud.
No further details were offered on those juicier topics.
Rio has also introduced new or revised standards for such things as anti-bribery due diligence, data privacy, fraud, and for conducting its investigations into allegations of serious wrongdoing.
“We have also refined our guidelines for information gathering in China,” Rio said.
The miner’s evolving standards come as enforcement of international bribery-and-corruption conventions accelerates, mainly in the US and Europe, according to investment bank Citigroup.
And the new legislation is strongly “extra-territorial”, the bank said, so contraventions by miners in far-flung countries with poor rule of law can be prosecuted elsewhere.
If an action does make it to court, the corporate costs and related disruption can be substantial.
In 2008, for instance, German engineering giant Siemens agreed to pay a record $US1.6 billion ($A1.6 billion) to American and European authorities to settle charges that it routinely used bribes – starting in the mid-1990s – to secure contracts in places such as Argentina, Venezuela and Bangladesh.
The associated legal fees in that case were estimated at around $2 billion.
Transparency International, the global anti-corruption initiative, also cites a European company case study, where a $1 million bribe on a $1 billion deal resulted in a $16 million fine, $76 million in forensic accounting and compliance costs, a $200 million reduction in contract size, alongside unquantifiable reputation damage and management distraction.
But despite evidence of the problems bribery and corruption can cause, some Australian Securities Exchange-listed companies are lagging in terms of disclosure, Citi argued.
Using a sample based mainly on S&P/ASX 100 companies – alongside smaller rock-kickers with developing-country operations – Citi identified several firms “potentially at higher bribery-and-corruption risk”
The two global miners, BHP Billiton and Rio Tinto, came out with a relatively clean bill of health, as both demonstrated “strong commitment” to corruption policies and implementation.
Alumina and Paladin were in the next rank down, providing “some” detail on policy implementation while a lower grouping, including Equinox, Kingsgate Consolidated, Medusa Mining, Newcrest and PanAust, offered only “generic” information.
Oceana Gold mentioned bribery and corruption but provided little other information, while a group of African specialists – Aquarius Platinum, Platinum Australia, Resource Generation and Riversdale – made “no mention” of the issue in public reports, according to Citi.
Among the larger companies sampled, contractor Leighton stood out in providing very little public information, despite having operations in many high-risk countries and industries, it said.
The bank believes this deficiency may soon be corrected, as Leighton is believed to be developing a “more prescriptive code of conduct”
With ethical standards being enforced more rigorously, it is strongly in the interests of miners and contractors to publicly outline polices.
For instance, in relation to the UK’s new bribery act that is due to come into force this year, it is a defence for an organisation to “prove that it had adequate procedures in place to prevent persons associated with it from bribing”, the bank said.
Transparency may also lower the risk of employees either accepting or offering bribes in the first instance.
“We believe it would be more difficult for employees and agents to take a firm stance on bribery-and-corruption enforcement in dealings with external parties, without being able to refer to the company’s public statements on the topic,” it said.
The bank offers the last word to Transparency International, which concluded a recent presentation with: “Some companies are managing risks adequately. Most companies are managing risks inadequately. Transparency is a good defence.”
*Metal Detective is a weekly column on ILN’s sister publication MiningNews.net.
