Anti-Corruption in International Mining Projects: Practical Risk Management and Compliance Strategies

1. Anti-Corruption in International Mining Projects: Practical Risk Management and Compliance Strategies Date: November 29, 2010 Presenter: Janne Duncan, Partner, Toronto officeTel.: +1 416 202 6715 Email: janne.duncan@macleoddixon.com

2. Corruption in Emerging Markets The global hotspots for corruption are developing countries: Source: Transparency International, 2007 Corruption Perceptions Index

3. Mining: An At-Risk Industry • Why is mining an at-risk industry? • operates in countries where there is a perceived high risk of corruption or where corruption is viewed as acceptable local practice • mining industry typically requires discretionary government-issued licenses, concessions, planning consent and permits which requires regular dealings with government officials to • mining companies are often involved in joint ventures or production-sharing agreements with foreign governments or state-owned enterprises in high-risk countries

4. OECD Convention Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention) • establishes legally binding standards to criminalize bribery of foreign public officials in international business transactions • adopted by the 33 OECD member countries and 5 non-member countries

5. Key Legislation in US, UK and Canada

6. Key Legislation in US, UK and Canada: Jurisdiction – who is covered?

7. Large and Increasing Penalties • ABB/Vetco Gray (2004): $16.4 million • Titan (2005): $28.5 million • Vetco Gray (2007): $26 million • Baker Hughes (2007): $44.1 million • Willbros (2008): $32.3 million • Siemens (2008): $1.6 billion (US & Germany) • Halliburton/KBR Inc. (2009): $579 million • Daimler (2010): $185 million • Snamprogetti/ENI (2010): $365 million • Technip (2010): $338 million

8. International Finance Institutional Efforts • World Bank Group • project agreements incorporate Anti-Corruption Guidelines by reference • failure to comply can result in sanctions including debarment • European Bank for Reconstruction & Development; Inter-American Development Bank Group; Asian Development Bank; African Development Bank Group (together “Multinational Development Banks”) • with European Investment Bank Group and International Monetary Fund, agreed in September 2006 - Uniform Framework for Preventing and Combating Fraud and Corruption: • April 2010, the Multinational Development Banks signed an agreement to cross-debar firms

9. Questions to ask • If company is doing a financing, how to respond to due diligence questions from investors? Investment bankers? • If company is the target in an M&A transaction, how to respond to due diligence questions from a [US? UK?] bidder? • If company is entering into a joint venture, how to respond to due diligence questions from a [US? UK?] JV partner? • How to cover due diligence questions from investors, investment bankers, a bidder in an M&A transaction or a potential JV partner about suppliers? JV partners? Foreign subsidiaries?

10. Best Practices to Minimize Corruption Risk: Effective Compliance Programs Effective Anti-corruption Compliance Program Essentials • Tone from the top – establish the right culture • Clear and well known written policy • Regular training of staff and related parties • Strong internal controls • Consistent and fair enforcement • Monitoring and revisions when needed - US Sentencing Guidelines Manual, §8B2.1

11. Compliance – Prevention is better than cure… • Create and Maintain Clear, Practical and Accessible Polices & Procedures • Business Conduct Guidelines • active and passive bribery • anti-money laundering procedures • policy on gifts and hospitality • mandate transparent documentation of expenses • whistle-blowing procedures and disciplinary consequences

12. Compliance – Prevention is better than cure… Top Level Commitment • Senior personnel should be responsible for compliance • Program and direct reporting relationship to the Board Regular Risk Assessment • identifies the likely and potential corruption an organization faces • risk assessments should extend beyond the company (i.e. transaction risk, country risk, partnership risk)

13. Compliance – Prevention continued… Training Best Practices • policy only effective if understood and adhered to • periodic training of all managers and employees • in local language or involving locals • use real life examples that are relevant to job function • monitor attendance and track results • update training practices according to changes in the law and in the business • ensure access and availability to materials • annual reaffirmation of understanding and commitment to Business Conduct Guidelines • use of questionnaires recommended

14. Compliance – Prevention continued… Strong Internal Controls • Financial accounting system to prevent illegal payments and to detect questionable payments when made • controls for contract approvals, payments, and other disbursements • maintain sufficient documentation • confirm that documented authorization procedures are adhered to • scrutiny of large or unusual payments • identify and track government related payments • involve internal audit and other business managers in ensuring compliance • periodic reviews and assessments of internal controls

15. Compliance – Prevention continued… Best Practices For Engaging Third Parties • Research the business reputation of third party • Conduct reasonabledue diligence • Require formal application process • Obtain a list of references and interview them • Require approval of third party contracts by centralized authority at the corporate level • Include anti-bribery provisions in third party contracts • Monitor third parties and require additional periodic certifications and audit • Remove decision-making authority in “grey areas” (i.e. travel; entertainment; gifts)

16. Watch for red flags during DD: secret or nontransparent details payment to third country, third party, or multiple accounts relationship between agent and foreign official lack of sufficient resources (i.e. staff) or competence to perform services offered requests for payments in cash or "bearer" securities foreign official recommends agent cash transactions or “off-book” payments use of side letters or stand alone consultant agreements lack of written agreements payment to entity run by former governmental officials third party is a shell company or use of unnecessary intermediaries unusually high commission payment or large increase in anticipated fee large dollar travel, gifts, entertainment or gratuities Compliance – Prevention continued…

17. Compliance – Prevention continued… Research the reputation of foreign business partners • Use official sources (i.e. Embassies or Consulates) • Review all publicly available information • Review incorporation documents to assess ownership and ensure no governmental interest [if possible] • Determine if the company has been subject to past corruption-related investigations • Interview proposed partner’s clients and customers • Determine whether further investigation is warranted

18. Compliance 2 – Implementation Reporting • Provide ways for internal & external parties to report compliance violations • Ensure employee whistle-blowers, who act in good faith, are not disadvantaged • Periodic audits of remote offices Investigate • Whether reported violations or due diligence of agents, JVs partners etc

19. Compliance 2 – Implementation Discipline • Impose appropriate penalties for compliance violations, as sanctioned by labour laws • Ensure awareness of disciplinary procedure during training Consistent and Fair Enforcement • Ensure policies are consistently enforced • no special treatment for certain clients or senior level executives, officers or directors • Ensure appropriate discipline and remedial action is taken • Promptly investigate concerns raised, particularly anonymous hotline complaints • will serve to prevent whistleblower claims • assists in establishing a culture of compliance and encourage more internal reporting

20. Compliance 3 – Monitor, Review, Respond Prepare Response to Potential Incidents • Determine whether and what to investigate • Determine who will investigate • Agree on investigation plan • Self-reporting

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