A new report claims the commodity boom has created new fraud and corruption risks for mining companies, and at least one legal expert believes Canada might have some challenges enforcing its anti-corruption legislation.
“It’s been a non-factor in Canada up until recently,” said Mark Morrison, a partner with Blake, Cassels & Graydon LLP’s white-collar-crime group. “I think it’s generally viewed as weaker than the U.S. legislation.”
Last week, financial services firm Ernst & Young (E&Y) released a report that said exposure to fraud and corruption has increased for Canadian mining companies recently thanks to cost-cutting initiatives and expansions into new parts of the world in search of high-value commodities.
The news has special significance for Vancouver’s business community, which is considered a global mining hub and home to many of the junior mining companies that are usually the first ones on the ground in new territories (see “Danger pay: Vancouver miners increasingly venturing into remote and unpredictable regions in the hunt for resource riches” – issue 1079; June 29-July 5).
“There’s a greater risk because there’s an urgency and imperative to get the deal done, and companies tend to then look less to the nature of the control they need to have over their investments,” said Paul McEwen, a partner with E&Y in Vancouver. “The perceived upside of doing the deal overshadows the risks of the deal.”
The news comes at a time when dozens of Vancouver mining companies are exploring for riches abroad as gold, silver, copper and coal prices rise. Over the last several months, analysts and mining executives have told Business in Vancouver that corruption and bribery are common in developing nations (see “Bribery a part of life for many overseas miners: analyst” – BIV Business Today, June 25). McEwen said he couldn’t cite any statistics regarding the level of corruption that involves Canadian mining companies abroad, but Catherine Coumans told BIV she hears about it frequently.
“This is much more on the level of anecdotal,” said Coumans, research co-ordinator for MiningWatch Canada. “It’s what we’re told by communities that we work with that their local mayor has been bought off by the company or that the local governor has been bought off by the company … I hear this all the time.”
The problem, she explained, is that incidents of corruption such as bribery, theft, fraud and kickbacks aren’t as easy to document as environmental and human rights impacts because they often occur behind closed doors.
According to a Prospectors and Developers Association of Canada report that MiningWatch recently obtained, Canadian mining companies were implicated in four times more corporate social responsibility (CSR) violations than mining companies from other countries between 1999 and 2009.
Most of the violations were community and environmental conflicts, though 28% involved unethical behaviour.
The report said that Canada is home to 75% of the world’s mining companies, so it’s expected to have a proportionate concentration of CSR violations. But it added that it doesn’t make them any more ethically acceptable.
Coumans said Canada’s Corruption of Foreign Public Officials Act (CFPOA) makes it possible to bring a complaint against a Canadian mining company operating abroad, but Morrison said the legislation isn’t as strong as its counterparts in the U.S. and U.K.
“To date, there’s been extremely minimal enforcement of the Canadian legislation.”
The reason, Morrison said, is that the CFPOA, which was passed in 1999, doesn’t have as broad a jurisdiction as the U.S.A.’s Foreign Corrupt Practices Act or the proposed U.K. Bribery Act.
In other words, Canada only tries cases with a “real and substantial” link to Canada, meaning that a portion of the illegal activities would have to be committed in Canada.
Morrison added that Canada has taken heat from the Organization for Economic Cooperation and Development for a lack of enforcement regarding its anti-corruption laws.
He said a bill was brought forward in Parliament in 2009 to strengthen Canada’s anti-corruption laws, but it disappeared when the Harper government prorogued Parliament.
Last month, Bill C-300 (“the responsible mining bill”) was defeated in Parliament.
It proposed a new governmental framework to handle environmental or human rights complaints against Canadian mining companies abroad, but McEwen said it might also have limited corruption.
Mike Savage, E&Y’s national fraud investigation and dispute services leader, said although the risk of fraud is lower in Canada, companies need to be proactive about anti-corruption practices abroad to protect their bottom lines.
“The time to develop plans and procedures that protect against fraud is not when the world is knocking at your door looking for answers,” Savage said.