Select Committee on International Development Appendices to the Minutes of Evidence


Memorandum submitted by Anglo American plc


  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.


  2.1  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.


  3.1  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.


  4.1  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.


  5.1  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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