AMCHAM BREAKFAST MEETING 24 MAY 2011
THEME: ANTI CORRUPTION PRACTICES AND YOU
Address: Anti Corruption Practices and the EITI
By Victor Hart, Chair, Trinidad and Tobago EITI Steering Committee
Today is a day of a few firsts for me. It is the first time that I am attending a meeting of the American Chamber of Commerce of Trinidad and Tobago (AmCham T&T). It is the first time that I am sharing a platform with these two distinguished persons. Also, it is the first time that I am having the opportunity, because of the theme of today’s meeting: Anti Corruption Practices and You, to combine my past experience as Chair of the Trinidad and Tobago Transparency Institute (TTTI) and my current role as Chair of the Trinidad and Tobago Extractive Industries Transparency Initiative (EITI) Steering Committee.
My address will show that there is indeed a natural link between the theme of today’s meeting and my roles in TTTI and in the EITI and I commend the organisers for recognizing it. It is my intention to give you an introduction to T&T’s membership of the EITI against the backdrop of corruption in T&T and the need for anti corruption practices at national and company levels.
Some of you may be thinking: ‘We know that corruption in T&T is nothing new, therefore, why are we spending time today talking about ‘anti corruption’ when there are so many other important demands on our time?’ Some of you might even be prepared to argue that a little corruption can’t be a bad thing if it greases the wheels of bureaucracy and expedites the delivery of services to the private sector and the general public.
I hope that the majority of you share my view that even a little corruption is too much because unchecked corruption is a major impediment to the development of T&T, to achieving this Chamber’s Vision and Mission and to achieving success in your respective companies. Therefore, if you understand what corruption is and the damage it can do to a country and company, you will see the need for anti corruption practices in T&T and, in your self-interest, you will want to part of the implementation of those practices at national and company levels.
Corruption is defined by Transparency International (TI), the global civil society organisation leading the fight against corruption and TTTI’s parent body, as the misuse of entrusted power for private gain. The definition applies to both the private and public sectors and contains three elements:
1) the misuse of power;
2) power that is entrusted; and
3) private gain i.e. not necessarily personal to the individual misusing the power but includes benefits in cash or in kind to family and friends. Corruption damages a country, particularly a developing country like T&T, because when a corrupt person steals, he/she steals not only money: he/she steals the hopes and dreams of young people for proper education, good healthcare, a roof over their heads, all basic human rights to which they are entitled.
Traps millions of people in poverty and misery. Retards social and economic development.
– Undermines the rule of law.
– Breeds social, economic and political crises.
– Threatens domestic and international security.
– Undermines democracy, the core values of an open society, respect for
– human rights, a free press and public accountability in government.
– Wastes public resources
– Threatens the sustainability of natural resources.
– Distorts national and international trade and commerce.
– Jeopardizes sound governance and ethics in the public and private sectors
– and distorts the market and poisons business relationships.
I have no doubt that all of you accept the proposition that corruption is damaging to our country. I also have no doubt that some of you may question the need to be concerned about corruption and its impact on your company, especially if you are of the view that you and your directors are not corrupt and neither are your key managers. However, I suggest to you that your company is at risk, and so too are you personally, all other members of staff and shareholders, if one of your employees is corrupt and goes undetected, or if persons in the supply chain, or in other companies with whom your company does business, are corrupt.
Corruption is damaging to a company because of the serious associated risks chief among them being:
- Financial penalties.
- Loss of reputation.
- Loss of certain licences.
- Less chance of selection for doing business.
- Potential debarment.
If any one of these risks befalls your company, it could mean loss of market share, severe contraction or even collapse. Clearly, as business leaders, you need to understand what you are up against by learning more about corruption and anti corruption practices.
Corruption comes in many guises but fraud and bribery (typical white- collar crimes) are the forms that most often impact negatively on a company’s operations. I refer here to crimes committed not only by company personnel but also by persons in associated companies and in the supply chain.
The global corporate scandals and court actions of recent years arising from corruption have led to the collapse of well-established international companies with the resultant loss of thousands of jobs, workers’ pension plans and shareholders’ and public’s investments to the tune of billions of dollars. If you doubted that there are risks associated with corruption, those cases should convince you otherwise. If you doubt that such things could happen in T&T, I need only remind you of the collapse of at least five local finance companies in the 1980s and the recent collapse of CL Financial Group of Companies and the Hindu Credit Union. The Colman Enquiry into the latter companies’ collapse might well conclude that the failure of those companies had its root not only in mismanagement, greed and poor regulatory control but also in common-or-garden corruption. It follows, therefore, that management needs to be more aware of what constitutes corruption and to respond to it with appropriate anti corruption practices.
Fortunately, today one sees enlightened management responding by taking the lead and not waiting for a case to be made to strengthen corporate governance to combat corruption in companies. They recognize that, given the risks, there is a growing business case for companies to fight corruption and we see more and better steps being taken to strengthen corporate governance. However, less enlightened management has to be pushed in that direction and domestic and international regulatory frameworks are often the external catalysts that drive that change.
White-collar crime is the one that most affects persons in public life and in companies and fighting it is a big challenge that government seems determined to win and businesspersons must be warned to put their houses in order. In my opinion, the steps taken by government to date, while impressive, are only a start to winning this fight. In addition, government needs to:
- Introduce Whistleblower Protection Legislation that will encourage persons to report white-collar crimes without fear of victimization.
- Revise the 1988 Code of Ethics that governs the conduct of Members of Parliament and establish and convene a Standing Ethics Committee for Parliamentarians in both Houses of Parliament.
- Reform the Judiciary to ensure, among other things, speedier trials e.g. abolish Preliminary Enquiries, as has been promised. Introduce a Judicial Code of Ethics to govern the conduct of Judges and Magistrates given their exemption for the Integrity in Public Life Act.
- Implement the recommendations of the Uff Commission of Enquiry into the Construction Sector and legislate the provisions of the White Paper on the Reform of the Public Sector Procurement Regime to reduce white-collar crime in public sector procurement.
- Enact legislation to create a permanent Anti Corruption Commission as announced on 4 January 2011 by Prime Minister Kamla Persad-Bissessar. Such a Commission should incorporate the existing Integrity Commission in a restructured form with a mandate to investigate all allegations of corruption and to initiate prosecutions in both the public and private sectors with the consent of the DPP.
- Honour all the corruption related obligations under the Inter-American Convention Against Corruption and the United Nations Convention Against Corruption.
In addition to the established international treatises and initiatives aimed at reducing corruption nationally and internationally, there are the relatively new initiatives such as the Extractive Industries Transparency Initiative (EITI), the USA Dodd-Frank Wall Street Reform and Consumer Protection Act and the UK Bribery Act and as business leaders you have to become familiar with them because some or all of them may impact directly or indirectly on your company operations.
The EITI is a voluntary international coalition of governments, companies engaged in the extractive industries (oil, gas and mining), civil society groups, investors, donors and international development agencies. It is managed by a stakeholders-elected Board of Directors and an International Secretariat in Oslo, Norway. The EITI was launched in 2002 by then UK Prime Minister Tony Blair and has a current membership of 35 countries (representing 900 million people) of the estimated 53 countries worldwide that are rich in natural resources. Most members are developing countries but, with Norway having recently become a full EITI member, it is expected that other developed countries will follow suit.
It is noteworthy that many of developed countries that are not yet EITI members support the initiative financially. In addition, international organization give financial and technical support including the World Bank, IMF, African Development Bank, Asian Development Bank, Inter- American Development Bank, European Bank for Reconstruction and Development and the European Investment Bank. And, approximately 50 of the world’s largest oil, gas and mining companies (some of which work in T&T) actively participate in the EITI process through their country operations in EITI implementing countries.
The EITI was founded in response to the real concerns voiced by civil society organisations and others from both developing and developed countries that too many of the 3.5 billion people from resource rich countries lived in poverty and under-development. It was felt that that phenomenon, sometimes referred to as the Resource Curse, had been allowed to go unchecked because of the lack of transparency and accountability over the income derived from the exploitation of those countries’ natural resources with resultant mismanagement and, in many cases, corruption.
The EITI supports improved governance in resource-rich countries through the full publication and verification of receipts and payments between governments and companies. The rules require governments to publicly declare the revenue received from companies (national and foreign) and companies to publicly declare the payments made to governments. The process is robust but flexible and participants from government, companies and civil society oversee it.
Independent auditors, who have to make public their findings, are charged with reconciling the payments and receipts and investigating any differences between the two public declarations. These requirements act as a major disincentive to corruption in the extractive industries.
The beneficiaries of T&T’s EITI membership are citizens, government, extractive industries companies (oil and gas in particular), investors and importers of our products.
Citizens benefit because their full participation in the EITI is a first-time public recognition that the country’s natural resources belong to the people and that they have the right to an independently verified and easily accessible public accounting of the revenues earned from those resources through taxes, royalties and other payments. Knowing what companies pay and what government receives for the people’s resources is a critical first step to enable citizens to hold decision-makers accountable.
Government benefits because of the enhanced image it gains from implementing a standard, internationally recognized procedure for natural resource management. The decision to reconcile company payments and government revenues via a multi-stakeholder process signals a commitment by government to good governance, improves its international credibility and affirms that it is committed to fighting corruption. An improved investment climate will result from its clear signal to investors that it is committed to strengthening transparency and accountability over natural resources revenues. As a result, one can expect to see an increase in direct foreign investment and improvement in the country’s rankings in Global Economic Indices and in Transparency International’s Corruption Perception Index (CPI).
Companies, investors and importing countries benefit from the improved investment climate in T&T where business will be seen to be conducted on a level playing field with reduced likelihood of corruption and increased political and economic stability, essential ingredients for capital-intensive long-term investments. This will encourage increased investment in energy production ventures so as to ensure stability of supply to importers. It is also likely that the resulting change in the business culture in the extractive industries sector may be adopted by other sectors of the national economy.
On 8 December 2010, Minister Carolyn Seepersad-Bachan, Minister of Energy and Energy Affairs, announced that, further to a Cabinet decision taken on 9 September 2010 that T&T would apply for membership of the EITI, she was inaugurating the EITI Steering Committee comprising, in the first instance, 15 persons representing the three stakeholder groups: government (6 members), extractive companies (4) and civil society (4) under my chairmanship. On 4 February 2011, T&T applied for membership and on 1 March 2011 the EITI Board of Directors admitted us to EITI membership with the status of an EITI Candidate Country.
As a result of admission to membership, T&T has now entered the challenging two-year implementation phase of the EITI during which the necessary legal and administrative systems will be agreed upon by stakeholders and put in place to satisfy all the EITI criteria. Also, the first EITI Report on the extractive industries sector will be published and widely disseminated and discussed. At the end of this period, T&T will have to pass a stringent independent validation test of its EITI systems before being granted the status of EITI Compliant Country, the highest level of EITI membership. The target date for this achievement is 1st March 2013.
Successful EITI implementation calls for a collaborative effort, support and participation by all stakeholders, therefore, public and private opportunities for the sharing of information, dialogue and feedback will be provided over the next 24 months via the media, private and public group- meetings, workshops etc.
Given T&T’s history of corruption, businesspersons cannot turn a blind eye to the corruption risks their companies face. In your self-interest, there is need for corruption consciousness and the implementation of anti corruption practices in your companies.
In that context, some might wonder if T&T’s membership of the EITI means that there is a serious corruption problem in the extractive industries sector. In my opinion, there is no evidence to suggest that that is so. I see membership of the EITI as recognition that, with such large sums of money involved in the extractive industries, the sector could become a magnet and target for corrupt persons who may wish to illegally enrich themselves.
T&T’s participation in the EITI is a responsible decision by the three stakeholders to combine forces in a collaborative effort to put in place checks and balances that will promote transparency in the sector and thereby reduce the likelihood of corruption and so protect the people’s patrimony. Without a doubt, membership of the EITI is a win-win situation for T&T and all its extractive industries sector stakeholders.
It is my hope that companies that operate in other sectors of the national economy would take note of what the EITI is setting out to achieve for the extractive industries sector. I encourage you to combine your forces to find ways and means to reform other sectors similarly. I encourage AmCham, as a service to its members, to assist them in pursuing that objective. When so doing, you will find it of interest that, in some countries, the EITI is being adapted for use in other sectors such as Forestry, Fishing and Agriculture.
Finally, as you pursue the objective of introducing anti corruption practices in individual companies, I recommend that you take a close look at Transparency International’s Business Principles for Countering Bribery (BPCB) that can be downloaded free of charge from the TI website (www.transparency.org). Those principles satisfy many of the anti corruption practices that companies need to introduce to protect themselves from corruption risks. Note that the Trinidad and Tobago Transparency Institute (TTTI) is a local source of useful information about implementing the BPCB.
I thank you for your attention and I look forward to hearing your views, during the panel discussion, on some of the matters I have raised.