Transparency and Anti-Corruption


4. Legal constraints

Foreign investors operating in off-shore jurisdictions in the extractive industries are often required to hold their licences to explore and develop projects through a company incorporated in the host country. Even if that was not the case, any foreign company operating in the host country would be subject to the host country’s laws, unless there is special legislation exempting them from particular laws. In both cases, normally the operating company would be subject to the general criminal and anti-corruption laws of the host country. However, as foreign investors they may also be subject to laws of other jurisdictions, which may, or may not, be even more stringent than those of the host country.

It used to be that, while many developed Western countries had legislation criminalising bribery and corruption in their own jurisdictions, it was not an offence under the laws of their home jurisdiction to bribe a foreign public official.

Conventions and laws

In 1977, in response to various scandals, the United States enacted the Foreign Corrupt Practices Act. With one exception for “facilitation” or “grease” payments, this groundbreaking legislation, prohibited US companies, companies listed on US stock exchanges, their employees, directors and agents, and  those using the US mail and other instruments of interstate commerce and American citizens from bribing public officials of foreign governments. A facilitation or grease payment is usually interpreted to mean a bribe or extorted money, usually relatively small in amount, provided to a low-level government official or business person, in order to expedite a business decision, shipment, or other transaction, especially in a country where such payments are not unusual.  The U.S. government then started lobbying other governments to adopt similar legislation so as to create “a level playing field” for competing companies.

In 1997, The Organisation for Economic Co-operation and Development (the “OECD”) enacted the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the ‘OECD Convention’) which came into force in 1999. The OECD Convention serves as a template for signatory countries to establish their own anti-corruption laws, and has been generally implemented by the United States,  the United Kingdom and Canada, amongst others. Implementation of the OECD Convention requires a country to create a criminal offence for the bribery of foreign public officials which has extra-territorial jurisdiction over its nationals who commit bribery offences abroad.

Conventions and laws (cont.)

The United Nations Convention against Corruption (the “UN Convention”) followed the OECD Convention and entered into force in 2005. … It has been ratified by 171 member states. The operative provision of the UN Convention is Article 16 which requires member states to criminalise the “promise, offering or giving” of an undue advantage to a foreign public official , or an official of a public international organisation, in order to  obtain or retain business or some other advantage in relation to the conduct of international business. 

To fulfil the requirements of these two Conventions and other commitments, for example, (i) the United Kingdom brought the Bribery Act into force in 2011 and (ii) Canada  brought the Corruption of Foreign Public Officials Act into force in 1999 and in 2013, added amendments allowing nationality jurisdiction. While in the United States, the Foreign Corrupt Practices Act’s exemption for facilitation payments remains in place, it has recently been interpreted narrowly by the US courts. The U.S. Department of Justice and Securities and Exchange Commission have also interpreted the facilitating exception very narrowly, requiring parties to demonstrate that they were entitled to the government action being sought and that the action was not discretionary on the part of the non-US government official. Payments to overlook paperwork deficiencies and/or avoid customs inspections have been found to be outside of the exception.

EITI

In 2002, the Publish What You Pay campaign was launched with CAFOD, Global Witness, Open Society Foundation, OXFAM, Save the Children and Transparency International as its six founding members. Its objective was to encourage the adoption of international standards of disclosure of extractive industries’ payments to host governments and host governments’ disclosure of revenues received from the extractive industries. Later in 2002, British Prime Minister Tony Blair announced the formation of the Extractive Industries Transparency Initiative (‘EITI”), a global coalition of governments, companies and civil society whose objective is to promote openness and accountability in the management of revenues from natural resources.

Over the decade following 2003, the EITI evolved from a vague initiative which encouraged voluntary corporate transparency, to providing additional enforcement impetus for globally accepted and legislated reporting standards for government payments made by large extractive companies and reporting by governments of revenues. The collective figures are audited independently to detect any discrepancies and an EITI report is published per country.

Dodd-Frank

In 2010, the President of the United States signed into law the Dodd-Frank legislation. This legislation was a response to the 2008 financial crises and dealt with many financial aspects, but among many other things, required US listed extractive industry companies to publish their payments to governments of the countries in which they operate. Subsequently, the U.S. government encouraged other governments to require their companies to do the same and in June, 2013, the leaders of the G8 nations met at Lough Erne in Northern Ireland and agreed to take action to ensure that extractive companies should report payments to all governments - and governments should publish income from such companies. 

Consequently, the United Kingdom, Canada and other countries have established a mandatory disclosure regime for the resource industry requiring extractive industry firms to publically disclose any payments made to foreign governments. For example, in the United Kingdom, The Reports on Payments to Governments Regulations 2014 came into force on December 1, 2014 and in Canada, the Extractive Sector Transparency Measures Act came into force on June 1, 2015.

In summary, a foreign investor in the extractive industries can have many legal obligations regarding transparency and corruption prevention besides those imposed by the host country. These extra obligations can arise through the jurisdiction of incorporation, the jurisdiction of stock exchanges on which the foreign investor is listed, jurisdictions where the foreign investor has carried on business and the jurisdiction of the citizenship of its officers or employees. The legislation applicable to a particular foreign investor will depend on the exact wording of the legislation in each of the relevant jurisdictions.