CHAPTER 3 HOW TO IMPLEMENT COMPLIANCE POLICIES IN NATURAL RESOURCES COMPANIES IN SOUTH AMERICA
| Jurisdiction | Derecho Internacional |
(Apr 2015)
HOW TO IMPLEMENT COMPLIANCE POLICIES IN NATURAL RESOURCES COMPANIES IN SOUTH AMERICA
Vicepresidente Legal y de Cumplimiento
Compañía Minera Antamina S.A.
Lima
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ANTONIO PINILLA CISNEROS is a Corporate Lawyer with more than 20 years of experience in the natural resources extractive areas (oil and mining). He was responsible for organizing the legal department of Antamina, the mining company for which he has worked since 1999. In 2012, he was nominated Vice President of Legal and Compliance, reporting directly to the CEO and President of the company, and has been responsible for developing the corporate compliance program for Antamina. Antonio received his law degree from the Catholic University in Lima, and his Master Degree in Corporate Law from the University of Lima. He has published a book entitled "Los Contratos Ley en la Legislación Peruana." He has been speaker at the Foundation's Special Institute on International Mining and Oil & Gas Law, Development, and Investment on two previous occasions.
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Contents:
1. Why implement corporate compliance policies in natural resources companies?
a. It is the right thing to do
b. It is one way how extractive and mining companies can avoid sanctions: (particular environment in which the operate)
c. Peruvian legislation applicable to corporate corruption and compliance crime:
2. How to implement a corporate compliance program? What should it include?
a. Intentions and commitment
b. Risk analysis
c. Policy design
d. Ethics Hotline (or Whistleblower Hotline)
e. Compliance Officer
f. Information and communication: dissemination
g. Training
h. Monitoring and auditing
3. Problems found during the process of implementing a Corporate Compliance Program
a. Lack of knowledge:
b. Resistance to change:
c. Our reality does not allow it:
d. Cost control:
4. Conclusion
1. Why implement corporate compliance policies in natural resources companies?
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Business competition and revenues can sway companies to develop corporate practices that are incompatible with some laws and ethical standards. The temptation of obtaining bigger earnings is what may lead some companies into corrupt practices. This is why, during the last few years, many companies and other entities have strongly developed methods to be in line with the law and avoid non-ethical business practices. These formal and core programs will be referred to as "corporate compliance policies" and will include the drafting of a code of conduct (or ethics), anti-corruption policies and controls. A large amount of time, a significant budget and specialized personnel has been hired to manage these policies.
What can be found behind this undertaking: is it only the fear of being punished or fined? Or is there a strategic vision which points out that working within the bounds of the law and ethical standards may add value to the company? We consider that there is a bit of both.
On one hand, companies operate within a challenging and increasingly competitive environment. This pressures them to constantly reinvent themselves and look for innovative practices. To offer an ethical and legal compliance framework has an important value within the market, which is ruled by large corporations where shareholders do not control the destination of their own investments. A company's good reputation is an intrinsic value which is crucial and hard to gauge. Even though it is very real and public in this globalized world ruled by social networks and rapidly increasing technological developments. The mere suspicious of practices which stray from the law or linked to corruption could bring down a business organization in a matter of hours and severely punish investors with the fall of their shares' price. For an investor, knowing that the destination of his investment is a company in line with the law and with an ethical culture has a high value.
On the other hand, in more developed societies, a sanction from supervisory institutions responsible for the observance of the transparent operation of the market may bring catastrophic reputational consequences for infracting companies and could lead to several years of imprisonment and fines for those involved.
In this paper, we will address the implementation of corporate compliance policies for companies in the extractive industry. The starting point will be to understand why these programs are important, we will then move on to the methodology that could be used to draft them.
The title of the paper could sound pretentious, but we firmly believe that the internal processes that need to be developed in companies that operate in South American countries to implement a corporate compliance programs have a lot of common elements. That is why we have dared to use such a challenging title.
So, we will start with this question: why to develop corporate compliance programs within extractive companies?
a. It is the right thing to do
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As we have stated, we start from the premise that in this day and age companies are trying to increase their value through innovative practices with a tendency to transparency in their corporate management; in particular we must consider that, for the most part, shareholders are physically far away from the operative management of the company in which they have invested. The best practice is to ensure to the investor that their money is protected; one way to ensure this is to assure the investor that the company is a "good competitor" within the market.
During the last few years, along this line, big corporations have developed programs that aim at developing an ethical culture in business. They integrate good corporate governance practices, risk management and corporate compliance. 1 Likewise, a series of institutions have been created that foster these corporate practices, such as the "Open Compliance and Ethics Group" (OCEG), among others.
Without any doubt, the premise is that in a company where good corporate governance, risk analysis and compliance policies are combined the value of the company increases because acting with this transparency (due to the existence of these practices) will enable it to attract further investments since investors are looking for this transparency.
Let's bear in mind the great distance (in big corporations) between investors and the company's administrative bodies. Deloitte states that: "...the GRC (Corporate Governance, Risk Analysis and Corporate Compliance -- this explanation is ours) can be considered as the most efficient protection mechanism to ensure the granting of robust information in the key decision-making process by the administrative council, as well as the best tool to link governance administration with the daily operation of the companies and with their compliance with current regulations in force". 2 To know that managers will make key decisions based on these premises is an excellent guarantee for investors.
In the same manner, the implementation of these policies should try to move companies away from corrupt or illegal practices. These corrupt or illegal practices generate high punitive costs and reduce the value of the company to their investors.
Without any doubt implementing controls against bribery and corruption risks is a healthy practice. Modern companies tend to promote a "good citizens" role, and as such the development of these corporate compliance programs related to good corporate
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governance practices generate an intrinsic value for the company that is difficult to quantify within the market.
It will always be better to do business with companies fostering good business practices than with companies where there is a concern about external or internal corruption. 3 Public opinion has gained more influence after the development of social networks and it plays a crucial role regarding the good standing of companies, which, in the long run, facilitates the business development. Just a quick glimpse in the news about companies linked to various scandals is enough to make us wonder if we would do business with them. Likewise, it is fairly standard for companies to carry out due diligence on their contractors and suppliers to determine whether or not they have any ethical issues, especially in regards to the owners' or workers' reputation.
Generally speaking, the ethical behavior of companies within the market is an intrinsic and vital value in the modern world that is rewarded or punished accordingly.
b. It is one way how extractive and mining companies can avoid sanctions: (particular environment in which the operate)
In addition to the above-mentioned reasons, which are applicable to all companies and corporations in general, we consider that there is a very special particularity that leads to implement corporate compliance policies in extractive companies (where mining companies are included): the places and locations in which they operate.
Mining companies and extractive companies in general must work where the resource they extract is located. In most of the cases, resources are in remote places and in developing countries with fragile institutions and with high indexes of public and private corruption. This poses big challenges for the development of economic activities, in particular for companies related to big corporations who are usually the ones that have enough capital to carry out the big investments needed for the development of extractive projects. 4 To operate in these countries implies, many times, a high risk to companies and an extremely big challenge for organizations used to a better-organized legal and social framework and on which they have based many of their internal policies.
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In general, big corporations are used to operate in a predictable environment...
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