Calgary  Toronto  Moscow  Almaty/Atyrau  Caracas  Rio de Janeiro Anti-Corruption in International Mining Projects: Practical Risk Management and Compliance Strategies Date:November 29, 2010 Presenter: Janne Duncan, Partner, Toronto office Tel.:

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

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

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

Key Legislation in US, UK and Canada US Foreign Corrupt Practices Act (FCPA) UK Bribery Act, 2010 [Not retroactive so prior legislation still relevant] Canadian Foreign Corrupt Practices Act (CFCPA) Illegal to bribe a foreign official or political party with the intent to obtain or retain business Illegal to bribe a foreign official, or accept a bribe, with the intent to obtain or retain business Similar to US Issuers (issued securities registered in US or files reports with SEC) - must keep accurate books and records of transactions - must maintain reasonable internal controls to prevent bribery Strict (automatic) liability corporate offence of failing to prevent bribery by “associated person” – could include joint venture partners of the corporate Defense to show “adequate procedures” in place None Facilitation payments are permitted Facilitation payments are NOT permitted Similar to US Voluntary disclosureNone

Key Legislation in US, UK and Canada: Jurisdiction – who is covered? US Foreign Corrupt Practices Act (FCPA) UK Bribery Act, 2010Canadian Foreign Corrupt Practices Act (CFCPA) Issuers (issued securities registered in US or files reports with SEC) and Domestic Concerns (US Citizens, residents and companies) regardless of where offence UK citizens, residents and companies regardless of where the offence occurs No jurisdiction over Canadian citizens, Canadian residents or Canadian companies where act takes place outside Canada Any non-US nationals or companies if it causes, directly or through agents, an act in furtherance of a corrupt payment to take place in the US Any non-UK nationals or companies if an act or omission forming part of the offence took place within the UK US parent companies can be liable for acts of foreign subsidiaries where authorized activity

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

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 Uniform Framework for Preventing and Combating Fraud and Corruption: –April 2010, the Multinational Development Banks signed an agreement to cross-debar firms

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?

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

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

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)

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

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

Compliance – Prevention continued… Best Practices For Engaging Third Parties Research the business reputation of third party Conduct reasonable due 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)

Compliance – Prevention continued … 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 … 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

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

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

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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