5. Towards Mutual Accountability and Shared Responsibility
5.2 Home Country Governments, Industries, and Shareholders
Home country governments and industries also have the responsibility of ensuring that the exploitation of mineral resources leads to better development outcomes. They should be accountable about transparency, especially with regards to illicit financial flows and conflict minerals. As a result of tax evasion, African countries lose massive financial re-sources which, according to the OECD, are larger than the amount received from Official Development Assistance (ODA). The revenues lost from African countries are being ac-cumulated in tax havens before being reinvested in the developed world. In fact, a large part of the illicit financial flows originates from the extractive industries in many African
38 Africa Mining Vision: February 2009
countries. These illicit financial flows that leave Africa to the rest the world are in the form of money smuggled out of the continent which has very consistent channels to be hidden, including secrecy jurisdictions and financial opacity. Lack of transparency of the global financial system makes it extremely difficult to track and recover tax-related illicit finan-cial flows. Transfer pricing enables companies which are part of the same multinational group to trade with each other at distorted market prices. Unfortunately, this practice is used by multinational groups to shift profits to jurisdictions with lower taxation. The OECD guidelines on “Transfer pricing guidelines for Multinational Enterprises and Tax Administrations” recommend the application of the “arm’s length principle” for the valua-tion of cross-border transacvalua-tions between associated companies that require using market prices in their intra-group trading. However, it is difficult and complex to administer and enforce this measure, as transfer pricing involves huge and expensive databases and high-level expertise to handle.
Even when these guidelines are enforced, the tax authorities of African countries do not have sufficient capacity and resources to examine the facts and circumstances of each and every case so as to determine the acceptable transfer price. Clearly, home countries have a responsibility to address these gaps. In addition, tackling transfer pricing requires a politi-cal dialogue that involves both developed and developing countries.
The U.S. legislation, the Dodd-Frank Act, which was signed into law by US President Obama in July 2010, represents an act of good faith of a home country government to improve transparency. A provision on conflict minerals is contained in Section 1502 of the Act and imposes legal obligations with regard to due diligence measures by companies that trade on US Exchanges and are implicated in the supply-chains of tin, tantalum, tungsten and gold, the four main metals extracted from eastern Democratic Republic of Congo (DRC) ores. However, in enacting legislative measures such as the Dodd-Frank Act, it is important that home countries have a complete understanding of the potential impacts (positive and negative) and unintended consequences of the implementation of these mea-sures; deploy necessary resources to help host countries build the necessary capacity and enforce the measures, as well as alleviate the negative impacts.
Other laudable examples include the technical assistance programme provided the Ger-man Federal Institute for Geosciences and Natural Resources (BGR) in the issue of miner-als certification in the DRC and Rwanda, described in the introduction.
Industry bodies from home countries can also play a significant role in improving gover-nance of the extractive industry sector. The International Tin Research Institute (ITRI)’s efforts represent a clear example of such roles.39 ITRI articulated a policy on artisanal and small scale mining and set out to design a system for improved due diligence.40 This system 39 ITRI is a UK based industry association, which includes in its membership actors operating across the supply-chain (smelters/processors, miners, traders, users), some of whom were mentioned in the December 2008 UN GoE report as buyers of cassiterite, coltan and wolframite from Eastern DRC exporters (“comptoirs”) sourcing in areas controlled by rebels.
40 Towards a Responsible Cassiterite Supply-chain. Improved Due Diligence and Steps Towards Vol-untary Industry Declarations or Audited Certification, ITRI, February 2009. See:www.itri.co.uk/
site/upload/.../ITRI%20action%20plan%202009%20”nal2.pdf
was named the ITRI Tin Supply-chain Initiative (iTSCI) and implementation started in July 2009 with the collection of licenses and official documents from comptoirs and trad-ers. ITRI has secured buy-in from the Congolese government and successfully liaised with the other due diligence initiatives. ITRI professes adherence to the OECD Guidance41, the iTSCI is mentioned in the Lusaka Declaration42 and gained support from BGR.
In the same group, the role played by the Global e-Sustainability Initiative (GESI) could be included.43 Responding to such campaigns, and to increasing pressure from US legis-lators and the UN, GESI set up an Extractives Workgroup in 2008 in cooperation with the Electronics Industry Citizenship Coalition (EICC)44. Joint collaboration of GESI and EICC on CSR in supply-chains started in 2008 to develop a smelter certification program, involving the piloting of a purchasing process to be initiated in the DRC, which should ensure that smelters source from socially and environmentally responsible mines.45 Shareholders also have roles and responsibilities to play to ensure that the companies they have invested in adhere to certain standards. Throughout the world, institutional investors have become significant shareholders and there is an increasing focus on their responsibility. As there are growing societal and environmental expectations, international guidelines have been developed to promote active responsibility of shareholders. In 2003, the International Corporate Governance Network (ICGN) – established in 1995 by a global grouping of pension funds and other investors – developed principles calling on institutional shareholders to “contribute to improving and upholding the corporate gover-nance of companies and markets in which they invest” and follow up on “serious corporate governance concerns that may affect the long-term value of their investment”. In 2006, the United Nations Principles for Responsible Investment (UNPRI) was introduced, ef-fectively reinforcing the guidelines. Indeed, under the auspices of the United Nations Environment Programme Finance Initiative and United Nations Global Compact, the UNPRI extended the call for active share-ownership to a broad array of environmental, social, and governance matters.46 With more than 850 signatories by the end of 2010, the UNPRI has been outstandingly successful. Similarly, a number of countries disseminated guidelines on active share-ownership for domestic institutional investors. In 2002, the UK Institutional Shareholders’ Committee developed the Statement of Principles on the Responsibilities of Institutional Investors and Agents. Additionally, references to
institu-41 See for example: www.itri.co.uk/SITE/.../8_iTSCi_News_Bulletin_October_2010_EN.pdf 42 http://www.icglr.org/IMG/pdf/Lusaka_declaration_”nal_version_english-2.pdf
43 GESI was established in 2001 to further sustainable development in the ICT sector. It is a mem-bership organization bringing together leading ICT companies, industry associations and NGOs.
Members include high-profile companies manufacturing products which are sensitive to NGO cam-paigns targeting consumers, such as mobile phones (Motorola, Nokia, Ericsson) and PC hardware (Microsoft, HP).
44 The EICC was founded in 2004 and is an ICT membership organization aiming at enhancing corporate social responsibility (CSR) policies in the global electronic supply-chain through use of a code of conduct. Its membership consists of 45 global electronics companies such as electronics manufacturers, software firms, ICT firms and manufacturing service providers.
45 www.eicc.info/PDF/PR_Extractives_Nov_Meeting_FINAL.pdf
46 Butler P. and Wong S. 2011. Recent Trends in Institutional Investor Responsibilities and Steward-ship. Pensions: An International Journal. May.
tional shareholder responsibilities have appeared in best practice guidance in Australia and the Netherlands.