How can the EITI become more relevant to people’s lives?

This week board members of the EITI (Extractives Industry Transparency initiative) will be meeting in Oslo to discuss how to strengthen the initiative so that it meets its aim of increasing transparency, public debate and accountability over the management of oil, gas and mining resources. Key questions will be discussed, such as whether to require extractive industry companies to disclose contracts, project level information the beneficial owners of licences, as well as how to ensure this information is presented in a way that reaches the right audiences in an accessible and understandable way.

In the light of these debates, Revenue Watch Institute, Paz y Esperanza and Tearfund have recently published a report into the use of EITI information in Peru published through its first report.

Women in Vinchos Community, Ayacucho at information meeting by mining company

Women in Vinchos Community, Ayacucho at information meeting by mining company

The EITI is now implemented in 37 countries and EITI reports present information on payments by oil, gas and mining companies, as well as the receipts by governments, and try to reconcile any differences. The subsequent dissemination of the results aims to enhance transparency, public debate and accountability over use of extractive industry revenues.

The research found that there had been little impact in Peru so far. Various reasons were given and are covered in detail in the report, but below I mention just three clear suggestions for change given by the potential users of the information.

1. Provide information that is relevant to people’s lives

The overwhelming response from local communities was the desire to know what impact the revenues from extractive industries were having on their daily lives. Put simply – what money was paid for the mining project in their community, what reached the district and what was it being spent on. The other main demand – more at national level – was to know the terms and conditions of contracts, with concerns that many of these were not negotiated in the interests of the country, but had been the result of underhand political deals. Both are needed to make the EITI relevant.

2. Work with ‘info-mediaries’ to interpret the information

Many of those interviewed complained that the information they received – particularly in long reports – was too complicated and difficult to understand. Others said that they wanted additional information on the full ‘extractive revenue routes’ from contracts through revenue payments to government spending and impacts.

Recommendations were for groups such as NGOs, media organisations and universities to act as ‘info-mediaries’ (information intermediaries) to interpret complex information and present it in a way that is understandable and relevant to different audiences. There is a role here for greater support from EITI national secretariats as well as donor agencies, and it should also be considered as part of the G8’s transparency agenda.

3. Analyse the context and link to wider social and political processes

The context in Peru is one of rapid development and expansion of oil, gas and mining activity, which has been accompanied by increased social conflicts. In December 2012, the government’s Ombudsman recorded approximately 230 conflicts, more than half of which were related to the exploration and exploitation of minerals. The most high profile case is the ongoing conflict over the Conga mine in Cajamarca, which has paralysed operations for over a year.

The country is largely divided into ‘pro’ and ‘anti’ mining camps and this affects any work by the EITI, with it being seen by some as a government initiative and therefore ‘pro’ mining and not to be trusted.

Although the EITI is not a panacea to resolve all of Peru’s problems, it needs to link closely to the dominant political issues such as environmental protection and local development planning if it is to remain relevant and contribute to better natural resource management and wider reforms. As one respondent from Cajamarca commented:

‘The EITI only plays a role of] informing and disseminating, but many people ask us what use this reconciliation is if it goes no further than making recommendations. A number of people have asked us what point there is in Peru being a compliant country if this has no impact on conflict resolution.’

 [A version of this article was first published on the EITI website and reproduced with kind permission]


Can greater transparency in government budgets help solve the global hunger crisis?

Today the 2012 Open Budget Survey was released; at the same time as the iF campaign to end world hunger is being launched. It may seem like these two have little connection, but read on…

The Open Budget Survey is an independent global measure of budget transparency and accountability around the world.

Open Budget Index Country rankings 2012

This year’s findings don’t make particularly happy reading. According to the authors, the International Budget Partnership, “the 2012 Survey reveals that the national budgets of 77 of the 100 countries assessed fail to meet basic standards of budget transparency.” These countries represent half of the world’s population and mean that fewer than half the world’s citizens have access to key documents and information about budget proposals or government spending – they cannot see where the money has come from or where the money is being spent. This lack of transparency gives greater opportunities for corruption and misuse of funds.

The Survey also finds that there governments are guilty of a “widespread failure” to provide sufficient opportunities for citizens and civil society to engage in budget processes.

However, it is not all bad news and the Survey shows that over the past 6 years, most countries involved have made improvements, often simply by putting information into the public domain that is already produced. Change is therefore possible and all countries can quite easily reach high levels of budget transparency and participation.

Farmers in India. Photo: Layton Thompson, Tearfund

Farmers in India. Photo: Layton Thompson, Tearfund

Returning to the IF campaign (full name, “Enough food for everyone iF…”), this seeks to mobilise UK and international action to end global hunger. Laura Taylor has given a good summary of the campaign which, among other things, seeks greater transparency so that ordinary people can follow government revenues and spending and make sure it’s spent on tackling poverty and combating hunger.

That’s where the connection comes. Transparency in government budgets enables citizens to see where money is being spent and helps ensure that the best investments are made, whether they be in health care, education or to promote food security and better nutrition.

One example is the Subsidios al Campo campaign in Mexico, which succeeded in getting the government to publish details of the agricultural subsidies to small-scale farmers. The information showed that many of the subsidies went to the wealthiest 10% of farmers, which led to effective pressure to reform the programme and redirect the spending to those most in need.

The iF campaign is therefore calling for the UK and other G8 governments to take a lead in promoting greater transparency across the board – in tax revenues, in land deals and in budgets. Not all of the G8 members fair well in the Open Budget Survey (although the UK is in third place, behind New Zealand and South Africa). Some of their counterparts in the G20 have even further to go.

The UK has two major opportunities to galvanise support for international action around budget transparency in 2013 – as chair of the G8 and co-chair of the Open Government Partnership. The next Open Budget Survey in 2014 – for which the data will be gathered at the end of this year – will show whether they have been successful or not.

To finish, I echo the words of Warren Krafchik, Director of the International Budget Partnership: “Reforms can be accomplished at little to no financial cost and can benefit billions of people. Good budget practices have been identified and standards have been set. Substantial technical assistance is available. The framework to improve exists – all that is typically missing, in many individual governments, is the political will to act. That must change.”

2013 – will the UK deliver transparency?

Exports of African oil and minerals totalled around $333 billion in 2010, nearly 7 times the $48 billion of international aid given to the continent.[1] However, such wealth often provides little benefit to the people living in these countries due to opaque systems that facilitate corruption.

In a world where there aren’t endless pots of money available, we need to ensure that resources – whether from tax, investment or aid – are used to tackle poverty and are not lost along the way.

Increased transparency is one part of the solution.

Tearfund has over a decade of experience working to make government, society, and economy work well, and especially for the poorest. When we ask our partners what they want, the request to support them in fighting corruption comes back time and again. So we help them hold their governments to account. And it works. By pushing budget transparency, partners in Tanzania have seen schools being built and health centres stocked with medicines.

Local budget tracking committee in Tanzania

The UK government recognises that transparency is critical for effective government, engaged citizens and efficient public services. It has set itself the ambitious aim of becoming the ‘most open and transparent government in the world’. This does not stop at our borders: David Cameron is clear that transparency and fighting corruption are part of the ‘golden thread of conditions that enable open economies and open societies to thrive’.

This has borne fruit domestically. DFID came top in the recent rankings for aid transparency and the UK government came third in the Open Budget Index for transparency in budgeting. But if open government is to make a real difference to the world’s poorest people, the UK government must grasp the opportunities of 2013.

As co-chair of the Open Government Partnership (OGP) and chair of the G8, the UK has a unique opportunity to coordinate governments, the private sector and citizens to ensure that resources are used to tackle poverty.

Specifically, we are looking for international action on transparency in government budgets, tax payments, and natural resource revenues.

Transparency in government budgets

Beyond the red box photo calls, budgets can seem dry and boring. But cash is king, and budgets are the heart of government activity. They show where money comes from, and where it goes. As “pasty-gate” reminded us, no budget decision can go unnoticed in the UK.

UK Chancellor George Osborne presenting the budget

But many governments do not have transparent budgets or allow citizen participation. A lot of money can go missing as a result. The good news, as shown by the Open Budget Index, is that improvements in this area are possible reasonably quickly through concrete government action.

The UK should work with other governments – both in the global north and south – to reach the highest standards on budget transparency and citizen participation. The OGP provides a real opportunity for this.

Transparency in tax payments

Research by Christian Aid has estimated that tax dodging costs poor countries US$160bn a year, again money that could be used by developing country governments to invest in vital services and meet the Millennium Development Goals.

Global action is needed to develop and implement rules which prevent companies avoiding their responsibilities to pay taxes, including the automatic exchange of information between revenue authorities, country-by-country reporting of revenues for all sectors and tackling tax havens.

The UK needs to be ambitious in pushing for concrete action through the G8 and G20.

Transparency in natural resource revenues

As mentioned above, revenues from natural resources often fail to deliver the promised benefits.

The UK government has shown strong leadership in this area, pushing for effective EU transparency legislation for companies to publish what they pay to host governments, in line with comparable US rules.

To have the greatest impact, other countries such as Canada, Australia, China and South Africa need similar legislation. Here the UK government can bring together leaders of resource-rich countries to develop global standards of natural resource governance.

On a final note, the government must lead by example by joining the Extractive Industries Transparency Initiative (EITI), and encouraging other G8 and G20 countries to join. With the EITI providing a forum for business, civil society to improve participation, transparency and accountability of natural resource management, surely the most transparency government in the world would want to part of it?

Graham Gordon

Senior Policy officer – Governance and Corruption


[1] OECD, (2011), Development At A Glance. ODA to Africa, p2 and WTO, (2011), International Trade Statistics, Merchandise trade by product, Table II.23

European leaders must take this golden opportunity to tackle corruption

Bishop Munga speaking at the European Parliament

By Bishop Stephen Munga

I came to the European Parliament in March this year as part of Tearfund’s Unearth the Truth campaign to ask MEPs to pass strong transparency legislation.

Today they sent a very clear message in the vote on the Accounting and Transparency Directives. The Legal Affairs Committee, under leadership of MEPs Klaus-Heiner Lehne and Arlene McCarthy, has insisted that project level reporting by extractive industry companies is the only way to produce meaningful information. Their proposed payment threshold of 80,000 euros is also welcome, as is the removal of all possible exemptions. This means that Europe is matching the US and we are moving towards a global standard. We are entering a new season as the benefits of transparency are now recognised at a global level.

Now the only stumbling block to effective legislation being passed in Europe is resistance by the Council and the Commission – under pressure from businesses who still want to keep certain payments hidden from us. This must not be allowed to happen. Commission and Council proposals still exclude project level payments and have payment thresholds at 500,000 euros that would produce meaningless information. Incredibly, they still entertain the idea of exemptions, allowing corruption in through the back door. Over the next few months as they come to a final position, they have the chance to change this and show they are serious about leading the way on transparency.

The information that is produced by extractive companies reporting their payments at project level will enable the communities I work with to know what money is being paid for the resources extracted from their land, and to be able to hold the district and national governments accountable for their use.

In the rural areas, Tanzanian citizens already have experience of monitoring government expenditure on issues such as health and education and we have seen a reduction in funds that have been diverted, and even some stolen funds that have been recovered. This means that more resources are available for vital development projects.

I call on European leaders to pass legislation that will support our efforts to empower citizens and not to miss this golden opportunity to work with us to combat corruption.

TrustLaw interviewed Bishop Munga in March about his campaign to increase resource transparency in Tanzania and the rest of the world. Click here for the full interview.

Bishop Stephen Munga is a member of the working group of the Tanzania Extractive Industries Transparency Initiative and chair of the Interfaith Standing Committee of Tanzania. He travelled to the EU with Tearfund as part of the Unearth the Truth campaign.

Originally posted on Reuters Trust Law,

A bright day in the fight against corruption

New transparency rules published by the US Securities and Exchange Commission (SEC) yesterday are a significant step forward in the fight against corruption and will benefit many communities where Tearfund works. We welcome this move, although we all need more time to plough through the 232 page document.

The Dodd Frank Act (Section 1504) will mean that communities will have information in their hands about payments by companies to their governments for oil, gas and minerals that have been taken out of their ground. This will help them to seek greater accountability and to make sure that it is used for the most pressing needs such as education and health services.

In Tanzania, where vast reserves of gas have recently been discovered, and could potentially bring in billions of pounds of government revenue, these rules will enable ordinary citizens to know how much US-listed companies are paying to their government. Furthermore, with similar legislation proposed by the EU and pressure for countries such as Canada and Australia to follow suit, most extractive industry companies in Tanzania will soon need to provide such information.

On the ground, work by Tearfund partner CCT has shown that when villagers have the right information about projects that directly impact on their lives, they will mobilise and make sure the money ends up where it should. This is positive both for greater citizen participation and strengthening of democracy as well as for combating corruption and using vital resources for development.

Big step forward, but what’s in a project?

Although delayed by two years, these rules are a historic move towards greater transparency in both industry and government.

They require companies to report on payments on a country-by-country and project-by-project basis and include a wide range of payments such as taxes, royalties, production entitlements and bonuses. They also require companies to report on all payments above $100,000 and have resisted company pressure to include any exemptions (p162). This will make a significant difference.

Although we are concerned by the lack of clear definition of ‘project’ – something that could cause confusion at the time of reporting – the rules nevertheless provide clear guidance that equates ‘project’ with contracts, arguing that “contract generally defines the basis for determining the payments… that would be associated with a particular ‘project’” (p86). This point should not be overlooked, especially as in its reasoning the SEC flatly rejects company arguments that projects are defined as countries, geographical basins or simply internal reporting units.

The EU must match the US and go further

The EU has the chance to match the US regulations and to go further, particularly by defining project more clearly and by providing a lower level of materiality that will provide more meaningful information to communities.

EU Transparency and Accounting Directives are on track to be agreed by the end of the year and could pave the way for a global transparency standard and show EU leadership and commitment to development and responsible business.

The priority is for the EU legislation to define project as based on lease, licence, agreement or other form of contract that gives rise to payments to governments. This will show where the money has come from and where it has gone to.

There should be no exemptions (as there currently are in the Commission proposal) and the EU should consider a materiality threshold of £10,000, so that all relevant payments are reported.

The UK government has taken a lead in Europe and must continue to do so. MEPs are on the whole in favour of strong legislation, but there has been pressure from companies and from some other governments to water it down. This must not be allowed to happen or communities will continue to see increased natural resource extraction with few benefits.

Can Tanzania break their deadlock on Olympic gold?

Tanzanian runner Samson Ramadhani is aiming for gold in the men’s marathon on Sunday, but the 2006 Commonwealth Champion is up against stiff competition in a discipline that East Africans have dominated since Abebe Bikila of Ethiopia won barefoot in 1960 – then repeated the feat (with shoes) four years later. Kenya are current champions when Samuel Wansiru smashed the Olympic record in Beijing.

Samson Ramadhani, Commonwealth Champion 2006

However (tenuous link from Olympics to mining), it may be better for Tanzania that they don’t bring gold home as the promised benefits have not always come to bear from this precious metal.

Gold mining has been intensive since the start of the 1980s and global companies such as African Barrick Gold (Canada), Ashanti Gold (South Africa) and Resolute mining (Australia’s third largest gold producer) own or have significant shares in the mines. According to the latest EITI report, gold accounts for almost two thirds of mineral production and exports earned these companies $1.076 bullion in 2009.

But in the same year Tanzania only earned $57 million from mining royalties.

What can be done?

This is something that is currently being addressed and there are some encouraging developments.

A new Mining Act was passed in 2010, which increases gold royalties from 3-4% and calculates payments based on gross as opposed to net revenues. This could double annual royalties to the Tanzanian government. However (in what is known as a grandfathering clause), the royalties only apply to new contacts, so the challenge is to get companies with existing contracts to move to this new regime. This is not just a pipe dream as one company has already done so. Others must now follow suit.

Secondly, the latest EITI report from May this year (pp20-21) includes vital information such as production volumes, which will enable the Tanzanian Revenue Authority to verify that companies are paying the right amount of royalties on the amount of minerals extracted. The report also includes details of direct payments to local governments as well as payments according to specific projects, which will allow local communities to track payments and ensure that the money ends up where it should and contributes towards development.

Many challenges still remain, as Bishop Munga, member of the EITI Multistakeholder Group told me:

“We still need increased transparency in contracts and licences, information broken down according to all projects and the material presented in a way that local communities can understand and engage with.”

These will need to be addressed in subsequent reports and should be covered in a new EITI law that is planned for next autumn. Tearfund, as part of the Publish What You Pay Coalition, is calling for proposed changes to EU Transparency legislation to address these issues and make sure that the information about payments is relevant and useful to local communities.

However, by far the biggest challenge – and opportunity – comes from elsewhere.

Gas boom

Vast reserves of off-shore gas have recently been discovered, with estimates at 28.7 trillion cubic feet of gas reserves, which, according to the UK government, is more than known UK reserves.

This is predicted to lead to a rapid growth in this sector over the next ten years, potentially bringing in revenues of billions of dollars.

Various licences have already been granted for gas and oil exploration, including to the UK’s BG Group, Ophir Energy, Royal Dutch Shell, Irish exploration firm Aminex Plc and Brazil’s Petrobras.

One government official I spoke to sounded a warning bell about the future:

“Everybody understands that we made a mistake when we entered into agreements with the mining companies in that we provided incentives that were too generous. For oil and gas we need to negotiate a better deal for Tanzania.”

There is the chance to get a better deal for Tanzania, but the window of opportunity is small – maybe only a few weeks.

Tanzania has no current gas laws in place. There are plans to produce a new framework policy in September this year. At the same time the government is also keen to press ahead as quickly as possible with exploration and exploitation, as next month they also plan to launch a new licensing round in Houston, Texas.

Energy and Minerals Minister Sospeter Muhongo has gone on record to say that the new law would increase royalties on gas production from 12.5 percent to an unspecified level and the new signing fee would be introduced. These developments are to be welcomed, but are not enough.

Civil society groups that I met on my trip last month highlighted key issues such as the need for contract transparency on all new licences, including a debate in parliament before approval. In this way ordinary Tanzanians can see if they are getting a good deal for the oil and gas that is extracted.

There also needs to be more attention paid to how the oil, gas and mining industries can bring greater economic benefits to local communities – not only though the direct revenue payments but through supporting Tanzanian businesses as service providers – local economic linkages.

Tanzania may not be bringing any gold medals home, but they still have a chance to win a medal for their gas industry. Will they do it? In four years time at the Olympic Games in Rio, we will have an answer, but the hard work needs to start now.

A tale of two villages: where transparency is doing its job

Arriving at Bahi Sokoni Village, the district capital, the local official didn’t want to be at the meeting. He came reluctantly and was visibly uncomfortable. From among the local villagers gathered, a chairman began to read from a report, only to be interrupted – his legitimacy questioned – and what I then witnessed was a 30 minute heated debate, in Swahili.

This local committee of villagers, boldly seeking to monitor and track the local government’s budget spending, is one of hundreds of groups known as PETS (Public Expenditure Tracking) Committees in Tanzania. Joining them I heard the murky details of what happens when those with power wield it in such a way as to threaten and silence all possible detractors; a grim world of this particular village leader bribing and threatening people until they were either afraid to challenge his activities, or were coerced into the activity in a way that they too would be found out.


PETS Committee, Gairo Village

In Bahi Sokoni two committee members had resigned due to threats. The existing chairman of the committee had built a small grocery stall, but was told to take it down by the village land committee as soon as it was finished. And a   woman told me how her small-holding had been handed over to another family by the village authorities, who harvested the rice and continue to occupy the land.

Committee members are living in fear, but they haven’t given up, despite being the only ones to challenge the village authority. What struck me was their courage and integrity.

After the morning’s showdown, PETS committee members and Tearfund partner the Christian Council of Tanzania (CCT) put their heads together. What to do? Well, get the committee re-approved by the village so it can function, for one thing; hold the village leader to account for years of misusing funds, another. And an idea to go through the courts, even though this takes a long time, or take this even higher up the chain of command. Just how far..?

A different world just next door

Just ten minutes from Bahi Sokoni, Mpamantwa village presents a stark contrast. We found the 20-strong committee waiting for us with village officials. When I asked them what PETS had achieved, they spoke one after another of how village life had changed.

The monitoring work of the committee has seen three classrooms built, doubling the size of the local school.


New classrooms, Mpamantwa Village

From the district budget they knew that 12 million Tanzanian Shillings (about £4900) was designated to classrooms, but the district education authorities weren’t releasing the money. The committee complained at the district education office, but getting no further there they contacted the local MP. By the end of the same day the remaining funds had been transferred to build the school. Now three new classrooms are being used and just waiting for doors and windows.

I was also shown the village health clinic that now has medicines, thanks to the tenacious work of the PETS committee. The community complained that there was no money in the clinic left for medicines. They asked to see the accounts and found no record of the expenditure for money received from the district.

350,000 Tanzanian Shillings (about £150) had been siphoned off by the doctor in charge. He was removed from his post and paid back the money, which was enough to restock the clinic. Since last year the clinic has published its accounts monthly on a wall for all to see.

Evidence from this, and other PETS Committees shows that people are more likely to get involved and hold their governments to account when they can see that the revenues have a direct connection with their lives and the lives of their children.

As Bigvai Mauya, PETS committee member from another village told me: “Previously we knew nothing about where the money was going. Now we get a report on income and expenditure”.


Rev Lupyana Mgimba, PETS Committee Member, Gairo Village

On top of receiving better health and education services, community members spoke of their increased confidence and better relations with local authorities – as well active involvement in setting priorities for development. They are no longer afraid to ask questions, or fearful of arrest.

Transparency in the wider context

Transparency is not all that’s needed for development in Tanzania. But it has enabled communities to ensure money is spent on the intended projects, whether that’s external aid money or revenue the government has raised itself. It also helps in the recovery of stolen money.

“I decided to join PETS because there is a lot of money that is meant to be directed towards development projects, but it doesn’t reach the intended group,” says Joyce Chigolla, of the PETS committee at Gairo village.

It is vital for citizens to hold governments to account for the all the money they receive; ensuring the money for basic public services – such as clean water, health care and education – is there, and not lost due to corruption. That’s why back home Tearfund’s Unearth the Truth campaign has been pressing governments for European-wide legislation that will make oil, gas and mining companies publish what they pay in contracts to governments.

Drawing from lessons from the PETS committees, it is clear that the information published through this legislation must be understandable and relevant to local people and linked to the projects in their communities.

Success or failure?

It is tempting to see the second village as a success and the first as a failure, but it is better to see it an example of courage and commitment to change. It shows the very need for greater transparency and accountability. The fact that a village leader is trying his hardest to close down the committee clearly shows that he is afraid of what a transparent process will uncover.

However, it is here that it will really test the mettle of the PETS committee members. Organisations outside the community like CCT are needed to give ongoing support to PETS members as there is so much at stake.

There’s so much to gain, as well as lose, when it comes to funds that can be used for their intended purpose.

We need to take the long view of change, and how we eradicate corruption.  Simon Meigaro, project officer for CCT, likens it to the Arab Spring:

“It will end,” he said. “Like Syria is taking longer than other Arab states, this will also end. But it may take some time.”

Transparency is doing its job, but don’t expect an easy ride.

This land is ours, but secretly it’s not really

San Martin region Peru

I have just returned from visiting one of Tearfund’s Partners, Paz y Esperanza in Peru and was struck by of a particular case of land grabbing. It graphically highlights the unresolved conflicts between social, environmental and economic priorities, compounded in this case due to secrecy and lack of participation.

Brief chronology of events

Indigenous Shawi communities have been living in the district of Papaplaya, San Martin Region in the Peruvian Amazon for generations, using the land for fishing and hunting and subsistence farming.

In 2006 Korean company ECOAMERICA asked PETT (the government body responsible for land titles) to inspect 70,000 hectares (about 70,000 football pitches) of supposedly “free land” land with the aim of developing it for agricultural exports. The initial technical report concluded that no one was living there, even though there are three indigenous communities as well as other populations and a proposed area of natural protection.

However, there was no formal response given to the company nor did the state give them any rights to ownership or usage.

Three years later, still having heard nothing, ECOAMERICA applied to a local judge in Yurimaguas (the provincial capital) under a process that is known as “positive administrative silence”. This means that if a person or organisation has gone through all of the necessary channels but doesn’t receive any answer from the state in a suitable timeframe, they can claim what they asked for in the courts.

This way the company gained legal ownership of the land in May 2010. The communities in question still knew nothing. Not only had everything been done in secret without them being informed, but their very existence hadn’t even been acknowledged or recognised.

Indigenous Shawi leaders

Only a few months later did they find out about this process and immediately appealed the decision before a higher regional court in Tarapoto. They won but the case has been appealed by the company to a national tribunal.

How could this happen?

Politically, indigenous rights have not been a priority concern of the state and have often been seen as a threat to wider plans for economic development of the Amazon based on oil, gas, forestry and agricultural exports. A recently passed Consultation Law for indigenous peoples met fierce opposition and has taken ten years to come to the statute books.

Practically, the land registry department is woefully underfunded and there are many cases of land titles being granted without officials visiting the area in question and without including the community or local populations in the process, leaving room for short-cuts and potential corruption.

On top of these challenges, different government departments have developed isolated and often conflicting policies and processes. How else could the regional government recognise three different rights to agricultural development, indigenous territories and an area of natural protection for the same piece of land?

What can be done?

The issues are complex and so are the solutions. But as a minimum three priority actions are needed:

–         adequate resourcing for registration of indigenous lands

–         consultation with indigenous groups over the uses of their lands, particularly in natural resource extraction

–         integrated development policies that seek ways of harmonising economic, environmental and social priorities

If these basic steps don’t happen, there could be many more cases similar to ECOAMERICA, which will not only threaten social and environmental rights, but will also undermine the security of any long-term investments.

Investors could see profits disappear through corruption claims

Last week the High Court  ordered Mabey Engineering (Holdings)* Ltd. to pay £131,201 of dividends that had previously been paid out to investors from contracts gained through unlawful conduct in anIraq bridge-building project.

On conclusion of the case Richard Alderman, head of the SFO, commended the Mabey and Johnston Group for having referred itself to authorities when it realised that there were irregularities in the contracting arrangements, and for introducing new management, anti-bribery and anti-corruption procedures.

That the company acted quickly when it discovered the wrongdoing is certainly commendable, but could it have been avoided? Shareholders around the country will be asking themselves the same question, if not for altruism or ethical reasons, then certainly to protect their investments. It is the first case of its kind and although the sums are small, the Financial Press has already expressed concern over potential repercussions.


Lesson to business and investors

On concluding the case Alderman sent a clear message to business that “shareholders who receive the proceeds of crime can expect civil action against them to recover the money. The SFO will pursue this approach vigorously.” This is even when the shareholders are totally unaware of any corrupt practices going on.

This links with his second take-home point that “shareholders and investors in companies are obliged to satisfy themselves with the business practices of the companies they invest in.”

Strong language with practical consequences, but will this lead to increased shareholder and investor pressure for companies to show that they have dotted all the ‘i’s and crossed all the ‘t’s when it comes to issues like prevention of bribery, supply chain management and transparency in contracting processes?

It should do if they see which way the wind is blowing.

Legislation that will protect investors from risk

It is already illegal to bribe foreign officials under section 6 of the Bribery Act, which came into force on July 1st 2011. The Act also requires companies to implement due diligence so as to prevent bribery. If properly implemented, this should act as reassurance to investors and shareholders that the companies are doing all they can to prevent bribery.

However, as pointed out in a recent submission by the BOND group of development NGOS, the failure to prevent bribery doesn’t cover bodies such as trusts, charitable organisations or other third parties. Bribery could still be ‘outsourced’, which should be a concern for investors. The guidance from the Ministry of Justice needs to be clear and to close this potential loophole and strengthen the due diligence requirements.

Secondly, the EU Accounting and Transparency Directives currently being discussed in the European Parliament and Council should be a further reassurance to those investors connected with the mining, gas, oil and forestry industry.

This legislation will require all of these sectors to publish revenues paid to governments where they are operating, both at country and project level.

Transparency in revenue payments will ensure that all payments are accounted for and will further serve as protection for companies against potential involvement in corrupt practices, including by third parties. It could even serve to improve relationships with local communities as they can see how much money is being paid for their natural resources and can compare this with the benefits they receive.

However, some of the companies have been lobbying hard at the EU level to try and undermine this legislation and hide potentially corrupt practices. This could have the adverse effect of undermining investor confidence and putting their investments at greater risk.

So, while last week’s ruling should serve as a warning to shareholders and investors, forward thinking legislation is going some way to strengthen the requirements of due diligence in anti-corruption measures and should serve to assuage some fears that may have arisen.

* Mabey Engineering (Holdings) Ltd is the parent company of modular bridge manufacturers Mabey and Johnson Ltd and part of the Mabey Holdings group.