5. Corruption and international investment
There was a time when corporate investment decisions were made primarily on the basis of profitability to the respective business. However, in today’s world, numerous international organisations, Non-Governmental Organisations (“NGOs”), commentators and national governments are calling on corporations to make investment decisions that take into account the effect such investments will have on the social development of the host country.
It is now generally recognised that corruption is a major factor in sustainable social and economic development. As stated by the UN Secretary General on October 21, 2003, when the United Nations Convention against Corruption was adopted by the General Assembly:
"Corruption hurts the poor disproportionally by diverting funds intended for development, undermining a government’s ability to provide basic services, feeding inequality and injustice, and discouraging foreign investment and aid."
In order to reduce ‘supply-side’ corruption, any foreign investor in the extractive industry should have a Corporate Code of Business Conduct or Code of Ethics that governs employee conduct in host countries.
However, an off-shore investor in the extractive industries must also ensure, with a fairly high level of confidence, that it correctly understands the nature and extent of the level of ‘demand-side’ corruption in a potential host country. Below are some of the approaches used by foreign investors to reach such a understanding.
Transparency International Perceptions Index
In 1995, Transparency International, a NGO based in Berlin dedicated to fighting international corruption in business, introduced its Corruption Perception Index (“CPI”). This poll of polls has since been released annually. The CPI 2015, ranked 168 countries and territories on a scale of 0 (highly corrupt) to 100 (100 very clean) ranging from Somalia and North Korea (8) to Finland (91). This index is widely used by off-shore investors considering extractive industry projects in a host country.
Demonstrations of government’s intention to fight corruption
Potential investors in extractive industry projects may also explore the host country’s political will-power to fight corruption by seeking the answers to following questions.
Has the host government signed and ratified the UN Convention against Corruption?
What steps has the host government taken to implement the UN Convention?
Has the host country sought technical assistance in fighting corruption from the World Bank?
Does the host country have a national chapter of Transparency International and how has the government responded to their concerns?
- Has the host country taken action against corruption in its legislative and administrative agenda?