APPENDIX 7
Memorandum submitted by Anglo American
plc
1. INTRODUCTION
1.1 Anglo American plc welcomes the opportunity
to submit written evidence to the International Development Select
Committee. We also applaud the Committee's decision to undertake
an inquiry into the impact of corruption which we believe to be:
a significant brake upon international development; an impediment
to the efficient operation of markets; a disincentive to foreign
direct investment into many countries; a drag upon the efficacy
of aid programmes and a significant factor in perpetuating unacceptable
levels of poverty in many countries where corruption is at its
worst.
1.2 Anglo American was founded in 1917.
Anglo American plc was formed in 1999 from the combination of
Anglo American Corporation of South Africa and Minorco and we
established our primary listing in London in May 1999. We are
one of the leading global mining and natural resource companies
with majority stakes in the world's largest gold and platinum
producers; a one-third holding in De Beers; and substantial operations
in base and ferrous metals; forestry, pulp and paper; coal and
industrial minerals. Anglo American companies have active operations
in Argentina, Austria, Australia, Brazil, Canada, Chile, Colombia,
the Czech Republic, France, Germany, the Republic of Ireland,
Mali, Namibia, Poland, Slovakia, South Africa, Spain, Tanzania,
the United Kingdom, the United States, Venezuela, Zambia and Zimbabwe.
We also have active exploration and project development programmes
throughout Africa, Australasia, Europe and North and South America.
Over 70% of our operations are in emerging markets.
1.3 We typically have less exposure than
oil companies to auctions—which may often be the subject
of malpractice—for rights to explore or exploit particular
areas of land and the government revenues generated by mining
are rarely of a comparable scale. Nevertheless mining businesses
are particularly dependent upon the goodwill of governments for
a licence to operate and continuing access to resources. When
considering an investment in a new mine with a life of, say 15-20
years, the political environment is a significant risk factor
which must influence any decision. Stability, the operation of
the rule of law and levels of corruption are all major factors
in the political risk analysis which we undertake.
1.4 Regrettably, a number of the countries
in which we work, and more particularly those where we might otherwise
choose to establish operations, find their chances of economic
advancement hobbled by widespread corruption in government and
the public services. Such corruption, in turn, tends to be corrosive
of political and civil institutions and the respect in which they
are held. The private sector too is not immune to corruption particularly
where these institutions are deficient and where opportunities
for profits are large.
1.5 We do not claim unique insights or a
particular expertise in relation to issues of corruption but as
a company which does much of its business in developing countries
it is a topic about which we feel strongly. It is our perception
that the role of corruption in depressing development has only
come to the fore relatively recently and yet cleansing public
administration is often a pre-requisite to progress. The subject
deserves greater priority and more attention.
2. THE IMPACT
OF CORRUPTION
ON DEVELOPMENT
2.1 We would endorse the OECD's recent statement
that corruption—"erodes public confidence in political
institutions and leads to contempt for the rule of law. It distorts
the allocation of resources, inflates spending on public procurement
and undermines confidence in the market place. It has a devastating
effect on investment growth and development. Furthermore, it exacts
an inordinately high price on the poor by denying them access
to vital services."
2.2 Corruption of governments and of the
political process is not a phenomenon unique to the poorest countries.
Grand corruption has been a phenomenon in most countries at some
point in their history. In some Western countries, even today,
the problem of financing political campaigns has led to serious
allegations of corrupt behaviour; similarly there have been instances
at a local government level in the UK of cronyism through the
effective existence of one-Party rule in some areas. Corruption
can occur anywhere.
2.3 However, endemic and systemic corruption
is most likely to thrive where the involvement of the State is
particularly pervasive, in situations of excessive regulation
with scope from the exercise of significant official discretion
and where: the traditional checks and balances of Parliamentary
accountability; appropriately skilled law enforcement; a fully
independent judiciary; or scrutiny by the media and civil society
are weak. Thus, the Transparency International Corruption Index
is dominated by the countries of the former Soviet Union; parts
of Africa and South America; the Balkans and some countries in
South and East Asia.
2.4 Because of the United Kingdom's close
association with Africa and that continent's disproportionate
share of the world's poorest countries there is a tendency for
public discussion about corruption in developing countries to
focus disproportionately upon Africa. Whilst it is a major problem
in some markets it is important to recognise that there is a huge
divergence between them. Thus, South Africa, Botswana, Tunisia
and Namibia, for example, have relatively sound public administration
systems and low levels of corruption. It is noteworthy that all
four of them have relatively strong economies and have achieved
a higher level of economic development. It may be easier to prevent
corruption in these conditions—for example because institutions
are stronger or because they can afford to pay their civil servants
adequately. It is also probably true that an over-dependence upon
aid programmes—which is typical of the very poorest countries—is
likely to increase the potential for corruption in that typically
resources are overwhelmingly channelled through governments.
2.5 The Committee may wish to note the conclusions
of the Africa Competitiveness Report 2000 produced by the World
Economic Forum and the Harvard Centre for International Development:
"It would be wrong and indeed dangerous
to draw the conclusion that corruption is just a minor nuisance.
. . there is clear evidence that corruption hinders economic growth.
. . There is new substantial empirical evidence that in Africa,
as in other regions, corruption severely distorts markets and
the allocation of resources. Specifically it is found to: undermine
a government's ability to impose and enforce necessary regulatory
controls to correct for market failure; reduce the fundamental
role of government in such areas as enforcement of contracts and
protection of property rights; and it acts as an arbitrary tax.
Thus corruption reduces the legitimacy of the market economy and
may slow down or even block movement towards democracy. . . The
potential impact (on foreign direct investment) of corruption
seems substantial, taking into account that Africa provides highly
attractive investment opportunities for foreign firms in several
areas."
2.6 Experience shows that corruption does
not always have an immediately catastrophic impact upon development—for
example in the case of those countries which have a generous endowment
of natural resources. But in Africa grand corruption has often
led to significant exports of capital. Moreover, throughout the
world it leads to a perverse distribution of resources liable
to weaken the emergence of the stable institutions and social
cohesion which should underpin long-term development.
2.7 Corruption may not only impact upon
development and the effectiveness of aid expenditure it may, regrettably,
also undermine public support for such spending and for debt relief
programmes. It is noteworthy that the recently published IPS0S-RSL
European Opinion Leaders' Survey 2000 found that 76 per cent of
respondents believe public and private sector corruption to be
the biggest single impediment to successful international development.
Clearly if opinion leaders and the electorate believe that the
failings of developing countries' own governments are primarily
to blame for their plight there will be increased resistance to
the transfer of resources and, possibly, the liberalisation of
trade access. It is reasonable for the electorates of donor countries
to expect recipient governments to account for the expenditure
so financed and to take reasonable steps—including seeking
to root out corruption—to attract private investment flows.
3. ANGLO AMERICAN'S
ATTITUDE TOWARDS
CORRUPTION
3.1 Anglo American plc is a supporter of
Transparency International and played a leading role in drawing
up the Commonwealth Code on Corporate Governance. Anglo American
plc's predecessor companies, Anglo American Corporation of South
Africa and Minorco, both had codes of conduct which forbade employees
to solicit, accept or offer bribes to public officials. This approach
remains and is at the heart of our Statement of Business Principles
for the combined company. This Code is currently undergoing final
consultation before adoption by our Board in the New Year. Such
Codes are essential tools in communicating our values to our staff
worldwide and in the operation of internal compliance procedures
and disciplinary controls. They also provide staff with protection
if they are put under pressure by foreign officials to behave
corruptly.
3.2 The prevalence of corruption is one
of a number of factors which has led us not to pursue investments.
We believe that to become embroiled in the bribery of politicians
or government officials is corrosive of sound business management
and we will reject involvement in a project rather than get drawn
into such practices. Concerns about corruption and lack of clarity
concerning property rights have been particularly influential,
for example, in our decisions not to pursue opportunities in recent
years, inter alia, in at least two African countries, one
in the Middle East and a number of countries in what was the Soviet
Union.
3.3 In addition to demands for bribes in
return for mining licences, examples of the type of practices
from which we, or our competitors, have suffered as a result of
corrupt behaviour include:
— being put under pressure by public
officials to work with specific local business partners with which
public servants may have had connections;
— having applications for mining licences
(including detailed technical evaluations) given by Ministry officials
to competitors who have then put in counter applications using
stolen data;
— requests by a Minister to use company
plant on his own land;
— enforced quartering and maintenance
of local security forces at Company operations; and
— the arbitrary impoundment of drilling
equipment by customs officials until payments are made for its
release.
4. THE PUBLIC
POLICY RESPONSE
4.1 During the Cold War, Western governments
were often willing to turn a blind eye to gross abuses of power
by the governments of "client" states. Whilst over the
last decade, there has been a welcome increase in the emphasis
given to good governance by the aid donor community there is a
great deal more which could and should be done to combat corruption
in emerging markets. What is needed is real political will and
a comprehensive strategy designed to: punish regimes where corruption
is allowed to flourish; to increase conditionality and to improve
monitoring by the IFIs; to choke-off possible external sources
of bribery; to support capacity building in areas likely to assist
in combating corruption including law enforcement and the promotion
of a free media; and more effective checks against money laundering.
(i) Anti-Bribery Sanctions
4.2 The OECD Anti-Bribery Convention is
to be welcomed. It is to be hoped that there will be regular and
authoritative monitoring of the enforcement of national legislation.
4.3 We welcome the broad thrust of the proposals
contained in the UK Government's discussion paper "Raising
Standards and Upholding Integrity—The Prevention of Corruption".
In the light of the increased internationalisation of business
communications, the proposal to put beyond doubt the UK's ability
to prosecute corruption offences which occur only partly within
the country is uncontroversial and sensible.
4.4 We also support the more radical proposal
to assert extra-territorial jurisdiction over corruption offences
committed by UK nationals overseas. Extra-territoriality should
be invoked sparingly and in the UK it is currently applied to
only a small number of the most serious offences. However, in
the light of the OECD Convention and of the clear inadequacy of
current legislation, pragmatically there appears to be a strong
case for adding corrupt practices overseas to this list.
4.5 Care will need to be taken in the framing
of the offences not inadvertently to criminalise business practices
which may be a defensible element of local business culture and
which are compliant with local laws. The Government also needs
to clarify whether its proposals will extend jurisdiction just
to British nationals or also to UK-based corporates and their
employees operating abroad.
4.6 As a UK-based multinational, we are
content to accept this change in the law but we believe it to
be imperative that, in parallel, the Government should also ensure
that steps are taken to: stop companies owned and based in other
OECD countries from evading the provisions of the Convention;
encourage more non-OECD countries to adopt the Convention (anecdotally,
a number of international Far and South East Asian companies appear
to have a high propensity to resort to corruption); and to increase
the conditionality of the UK's own aid programme on the operation
of effective anti-corruption programmes amongst recipient governments.
Seeking to remove the type of temptation which international companies
may put in the way of foreign officials is to be applauded but
it is only part of the measures needed.
(ii) Corporate Governance
4.7 Some years ago many firms may have regarded
the payment of bribes as an unavoidable cost of doing business.
This is a counsel of despair and we believe that attitudes are
changing. A number of international companies have sought to take
a lead in combating corruption through taking a firm line and
asserting strong internal controls. The increased interest in
sound corporate governance and corporate social responsibility
are helpful in this regard.
4.8 A 1998 OECD survey of companies' codes
of ethics found that bribery and corruption was the fourth most
commonly included topic. We believe that the interest of ethical
investment funds, scrutiny by the media and NGOs on the ground
and the improved risk management processes put in place in response
to the Turnbull Report will also encourage UK firms to reject
bribery.
4.9 We note that the OECD Code for Multinational
Enterprises; the UN Global Compact and the Sullivan Principles
contain disavowals of corrupt practices and would expect their
provisions increasingly to influence corporate codes and practices.
4.10 Some private sector organisations,
such as the Commonwealth Business Council, are also devising and
implementing programmes designed to help governments in developing
countries to combat corruption and to support capacity building.
(iii) International Financial Institutions
4.11 The major international financial institutions,
led by the World Bank, have become more assiduous in mounting
anti-corruption programmes and in insisting on conditionality
and in improving the monitoring of disbursements. The World Bank
has increasingly embraced combating corruption as a central element
in the design of its programmes and it is paying greater attention
to public sector capacity building including improving transparency
and government accounting practices. The OECD also appears to
be giving a higher priority to anti-corruption initiatives especially
in the former Soviet Union, South Eastern Europe and Asia.
4.12 We would hope to see similarly greater
rigour in the disbursement of aid monies, particularly by the
European Development Fund. We welcome what we understand to be
an increasingly tough line on corruption by UK Department for
International Development.
4.13 In addition to withdrawing aid from
corrupt recipients we welcome the disbarring of firms from World
Bank projects who are found to have behaved corruptly from contracts
and believe there may be greater scope for "naming and shaming".
(iv) Capacity Building
4.14 Combating corruption needs to involve
liberal use of external controls and sanctions but over the medium
term these initiatives need to be augmented by more positive measures
to help countries to change their political and bureaucratic cultures.
Thus, those aspects of aid and private sector social investment
programmes which support civil service reforms; specify transparency
in government accounting; strengthen the independence of the judiciary;
improve the effectiveness and resourcing of law enforcement agencies;
support the development of civil society groups and which foster
a free press are all relevant. Combating corruption is not just
a matter of effective enforcement it is also about culture change
and strengthening the hand of reformers.
(v) Money Laundering
4.15 Finally, it is essential that there
is more effective international co-operation to combat money laundering.
At present too many heads of state and their families feel that
they can siphon huge sums from the public exchequer without any
great likelihood of being called to account or of having to return
their ill gotten gains. In this respect the work of the Financial
Action Task Force is to be welcomed. The recent media revelations
about the Abacha case and the very low level of prosecutions in
the UK relative to the number of suspicious transaction reports
suggest that the UK needs to address issues of international financial
crime more vigorously.
5. CONCLUSION
5.1 Anglo American welcomes the Select Committee's
inquiry and hopes that its Report will help to crystallise debate
and create a shared determination across the public and private
sector to combat corruption. In our experience it should be a
priority issue in seeking to make the international economy operate
more equitably and efficiently, in relieving poverty amongst the
poorest nations and in reducing the incentive for companies to
be drawn into corrupt behaviour.
Anglo American plc
November 2000
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