The mining and metals sector is gaining renewed global macro-economic prominence and will be critical to the success of the global energy transition towards a low-carbon future. However, it is a sector that has traditionally been highly exposed to bribery and corruption risks.
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As businesses and investors take advantage of the opportunities presented by the transition, they should remain mindful of these risks so that they can create systems and controls in order to effectively manage them.
Minerals including lithium, graphite, and cobalt are critical to the manufacture of renewable energy technologies and are only found in a small number of countries, many of which are considered very high-risk from a bribery and corruption perspective.
The challenge of interacting with government officials in these countries is one contributing factor to this risk. Such interactions are high-risk because of the very low test for bribery under international bribery laws. The risks are acute in the sector because of the need to work closely with government officials throughout the development and operation of projects. The challenge is to maintain good working relationships with government officials, whilst avoiding conduct that could be perceived as falling foul of bribery and corruption laws.
It will be particularly important to avoid making payments, including ‘facilitation’ payments, to government officials (directly or indirectly). Facilitation, or ‘grease’ payments, are made to government officials to expedite routine action. They are illegal in an ever-growing number of jurisdictions, but remain a common and expected part of doing business in some countries.
Engaging third parties also poses bribery and corruption risks, as businesses can be held criminally liable under international bribery laws for bribes paid by those acting for them or on their behalf. Businesses should undertake due diligence into third parties before, and continually monitor them during, engagement. Such monitoring should be conducted by employees with the skills and experience to spot potential bribery and corruption issues.
Meanwhile, the energy transition will likely result in increased investment in the mining and metals sector. Pre-deal due diligence should include checking whether an anti-bribery and corruption framework exists, since it is important to know how typical financial crime risks are managed and establish whether risk-management tools are likely to have been effective. This will enable potential investors to be fully informed of the risks presented by a transaction.
Bribery and corruption risks in the sector will not vanish as a result of the energy transition. Cooperation between agencies at an international level has helped facilitate the enforcement of anti-corruption laws globally, with a significant proportion of enforcement actions in bribery and corruption occurring in the mining industry.
Businesses in the mining and metals sector should therefore spend time focusing on assessing bribery risk and creating and implementing systems and controls to effectively mitigate risks, whilst allowing operations to run smoothly. Such systems and controls should be tailored to the country in question, given that each country will have its own systems and present unique challenges.
Comment written by:
Anneka Randhawa - Partner, White & Case LLP.
Lucy Rogers - Associate, White & Case LLP.