The Organization for Economic Cooperation and Development (“OECD”) has recognised a pattern of corruption risks in extractive industries based on a sample of 131 concluded and on-going cases. In a report published on 20 April 2016, the OECD outlines practical measures and incentives to combat corruption in both public and private spheres.
Of the sampled cases, corruption in extractive industries can occur by both state and non-state actors across the whole process including: decisions on granting the necessary authorisations; awarding mining or exploration licences; revenue collection; management of expenses; and customs clearance.
The report highlights interesting risk factors which have made identifying and preventing corruption in extractive sectors challenging.
Notably, on the government side, there may be a lack of information or technical abilities to assess the country’s natural resources. While this risk factor may not generally be seen as an immediate corruption trigger, it can result in authorities failing to make informed decisions.
Similarly, the possibility of free reign in decision-making, coupled with limited accountability, may foster an environment of corrupt practices, such as favouritism and bribery, and weaknesses in the legal system could undermine a government’s ability to effectively detect, prevent and sanction corruption.
On the corporate side, risk factors may involve junior companies taking high-risk investments often because there is a low reputational risk. Consequently, there may be a lack of anti-corruption policies and prevention efforts embedded in the companies’ corporate profiles.
The report details various solutions to alter behaviour. Specifically, governments are encouraged to: (1) limit the scope of uninformed decisions by developing knowledge on a country’s resources; and (2) implement legislation, policies and governance mechanisms regulating the discretion of granting licences; and strengthen coordination between local authorities prior to decision-making.
Corporates are encouraged to sensitise and train their personnel on responsible extraction and on national/international anti-corruption standards. The overarching aim of the report is to make corruption less attractive and more expensive to all parties involved.
The complete report, Corruption in the Extractive Value Chain: Typology of Risks, Mitigation Measures and Incentives, is available here.