Behind the tumbling share price of Glencore lies both an intrigue worthy of a paperback thriller and a salutary lesson in how not to manage corruption risk in a high-risk sector.

Another giant of the mining sector, the largest commodity trader in the world and the biggest supplier of zinc and cobalt, has been hit with fallout from bribery and corruption allegations that came to light with the leak of the Paradise Papers, from the offshore law firm Applebys. The allegation was that Glencore secretly loaned $45 million dollars to a company owned by Dan Getler, an Israeli billionaire, after it enlisted him to secure controversial mining agreements in the Democratic Republic of Congo (DRC).

Since the ‘90s, Getler has been striking highly lucrative extraction deals, including for diamond extraction, in DRC through relationships built with senior politicians. In the subsequent decades more deals were struck in this country, the size of Western Europe with a surfeit of natural resources.

The SFO became interested in Glencore’s relationship with Getler earlier this year, after Gertler and his close friend, the DRC President Joseph Kabila, were implicated in existing British and American bribery investigations. These had resulted in a deferred prosecution agreement for a penalty of $213 million, with Och-Ziff Capital Management, a New York hedge fund, that had also supported Getler’s activities.

Getler, also implicated in the ENRC SFO investigation, became subject to US sanctions last year in response to concerns regarding his involvement in DRC deals.

The Paradise disclosures laid bare the Glencore/Getler connection and resulted in the filing of a criminal complaint in Switzerland by Public Eye. In the context of allegations of bribery in Venezuela and Nigeria, the US Department of Justice has subpoenaed Glencore under its anti-corruption and anti-money laundering legislation.

The tale is a case study in the British and US authorities’ exercise of their powers to crack down on corruption and assert their jurisdiction wherever in the world it happens, where it affects companies traded in the UK or dealing in US currency.

The combination of sanctions, launched investigations, self-reporting and deferred prosecution agreements is typical of the law enforcement activities in this area.

However, there is a wider context in the growing international movement to drive corrupt practices out of the mining sector. Evidence over recent years has increasingly pointed to corruption infecting all levels and aspects of the mining sector. The combination of high-risk jurisdictions, significant government participation, and the rewards at stake for the successful, have meant that the temptations are strong and the deterrents weak.

For this reason, Transparency International (TI), the anti-corruption campaigner, has focussed on the sector and published its research on ‘Combatting Corruption in Mining Approvals’. Its conclusion was that corruption risk was prevalent throughout the sector and not restricted to developing countries and that mining approvals regimes across the globe had some critical gaps. The report identifies mitigation measure for all stakeholders, from governments and the industry, and calls on them to enhance transparency and accountability.

For the industry specifically, TI identify a critical role for the industry in ensuring that their operations are corruption-free and in championing good practice. TI identify specific areas for focus in relation to the industry’s approach to the mining approvals process:

  • Being transparent about their operations and business relationships and partnerships, and their own track record in this area
  • Disclosing their project obligations including their licence conditions and environment and social workplans and community development agreements
  • Committing to and conducting genuine community consultation through protocols that ensure genuine representation of the community interest
  • Maintaining its own high standards and going ‘beyond compliance’ where a country’s standards fall short of these
  • Understanding the corruption risk in the countries where they operate and introducing internal integrity systems, including whistleblower protection, to prevent and detect corruption in their operations.

The TI report throws light again on a landscape where corruption risk presents a permanent challenge; however, the industry objectives identified should already be on their way to being achieved in any company where compliance is a priority.

The Bribery Act 2010 has been a cornerstone in the UK’s efforts in this area for some time, and since its introduction, the UK has had its share of high-profile successes for the SFO in this area, such as the Rolls Royce fine.

With an effective anti-corruption compliance programme, embedding the ‘adequate procedures’ required, these objectives should be well on their way to being delivered. Any such programme will, as a minimum, include:

  • A proactive and evolving risk assessment process, overseen at a senior level
  • Robust and proportionate due diligence processes for all relationships but particularly agents and associates
  • Quality customer onboarding process meeting current requirements including sanctions screening
  • Procurement processes consistently and effectively applied
  • Strong internal integrity systems including identification, resolution and/or elimination of conflicts of interest
  • Embedding of the ‘right’ culture through training, alertness to ‘red flags’, and ‘tone from the top’ consistently and clearly communicated.

Many of the jurisdictions reviewed by TI have since adopted initiatives to strengthen the government role in reform in this area, viewed as critical in ensuring that the contribution that the mining sector makes to development is positive and sustainable. However, we can expect to see these measure backed with determined efforts by the enforcement authorities, to stamp out bad practice and ensure that wrongdoers are held accountable.

With hindsight, it is easy to see how events were going to play out in the Glencore saga; however, unless corruption risk is being actively identified, report and monitored, management can easily be caught off guard.

This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.