Miners more exposed to fraud and corruption

Sydney, Moscow, September 9 — Mining and metals companies’ exposure to fraud and corruption is now higher as a result of control cost cuts and expansion into new territories.

Ernst & Young Global Mining & Metals Leader Mike Elliott says the nature of mining operations make the sector particularly vulnerable to fraud and corruption and the risk is now higher with strong demand for minerals encouraging faster expansion.

“Companies around the world have re-activated capital projects and exploration activities in frontier areas. Large amounts of money are being spent in these new areas and with controls streamlined during the financial crisis, the risk of fraud and corruption is much higher,” he says.

Ernst & Young’s Fraud and corruption in mining and metals 2010 report outlines the fraud and corruption risks, drivers and best practice considerations for companies in the sector.

“This greater exposure needs to be top of mind with Boards – ultimately fraud and corruption risk is central to their corporate governance responsibilities,” says Elliott.

“The impact of this can be fundamental to an organization’s ability to operate – it impacts its bottom line, its social license to operate, its ability to access new projects, the return of value to shareholders, and the reputation of the organization.”

“The time to develop plans and procedures is not when the world is at your door looking for answers – fraud and corruption are key risks that organizations should be prepared for.”

Elliott says fraud and corruption is about deception and not every proactive measure is guaranteed to mitigate against it occurring.

“However, businesses with the appropriate foresight in fraud risk management are likely to fare better with regulators and law enforcement agencies if and when fraud does occur.”

Elliott says the extensive reach of the new UK Bribery Act, introduced in April this year, highlights why companies need to be more pro-active in preventing fraud and corruption everywhere they operate around the world.

“Like the Foreign Corrupt Practices Act (FCPA) in the US, the UK Bribery Act does not just apply to UK based companies. However the UK Bribery Act goes even further than the FCPA and will penalize companies with inadequate controls to prevent bribery.”

Elliott says elements of the new Financial Reform Act in the US are also indicative of the increasing focus on fraud and corruption by governments, with Section 1504 of the Act requiring resource companies to publicly report all payments to any government or government agencies anywhere in the world.

“In Russia enterprises in the metallurgy and mining industries are traditionally innovators in implementing management measures. Efforts to counter corporate fraud are no exception,” says Ivan Ryutov, Ernst & Young Partner, Head of Fraud Investigation and Dispute Services in the CIS. “We see many companies working to assess and manage fraud risks, implementing special measures and working actively with employees.”

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