“How can you work in diamonds in Africa, Russia or some other weak-governance places in this world without paying an occasional (or frequent) bribe?”  This question is being raised more and more since the DTC launched its latest Diamond Best Practice Principles and the ABN-AMRO bank published the diamond strategies against money laundering book. Less than a decade ago, bribing was considered part of normal business conduct. Until recently the bribery of foreign public officials has been accepted as a normal cost of doing business by many western developed countries. Companies claimed that they must pay bribes in order to be favorably con­sidered for the awarding of con­tracts. By allowing the tax deductibility of such bribes as an expense in earning income, several governments were perceived as con­doning this practice – and, actually, they did. Many do still today. Often governments themselves are engaged in bribing other governments or private sector players. [This week an International Olympic Committee member was kicked out of the Olympic Games in Athens for suggesting that bribes (by governments) had something to do with the selection of cities for future games.]

Writers about money laundering, including yours truly, note the increasing awareness about the social, political and economic cost of corruption. Bribing erodes public confidence in political institutions and leads to contempt for the rule of law. Bribing dis­torts the allocation of resources, inflates spending on public procure­ment and undermines competition in the market place. It may have a devastat­ing effect on investment, growth and development. As not everybody can afford to bribe, corrup­tion impacts on the poor by denying them access to vital basic services. And, let’s not kid ourselves, bribing is still very much a part of contemporary society.

The diamond industry, which is very cognizant of reputational issues and the need to protect the integrity of the product, is displaying increasingly a laudable intolerance to these dev­astating effects – and most companies (especially the large ones) have issued policies and regulations to refrain from bribing. One might ask, however, how one can change overnight a practice which was acceptable only a few years ago. Diamonds are an infinitely small commodity on a global basis and controlled by a relatively small number of players. Our industry doesn’t face major problems in this respect – but in a zero-tolerance environment, small problems still warrant addressing the issue.

I was wondering how some of the world’s largest mining concerns (of other minerals, metals and commodities) are dealing with this issue. What are they telling their employees? One mining company (that has only a limited exposure to the diamond business) states that it enforces a strict prohibition of bribery of any kind. That it is clearly a non-negotiable policy.

At the same time – and here is the catch – the pragmatic mining company recognizes that it is not uncommon in some countries for employees to be asked to make relatively minor payments, more by way of a gratuity, to lower level officials or government employees.  These payments (sometimes called “facilitating payments”) are sought to expedite routine services or administrative actions provided or performed by those individuals. 

The huge mining conglomerate we analyzed states that it is opposed to making such payments as a matter of policy, and every effort should be made to resist them. They are not prohibited, per se. Employees are advised that an understanding of what lies behind a request (e.g. the person may be seeking recognition or status) may suggest ways to meet the request in an acceptable way. However, the company informed its workers that it recognizes “that in some cases this will not be possible and it will be necessary to form a judgment about what to do in these circumstances. And then it provides guidance stating that minor facilitating payments may only be approved and made if:

 The purpose of the payment is to expedite the completion of a routine service or administrative action which the company is entitled to under local law and in the ordinary course of events.  The payment must not be an attempt to distort a proper decision-making process;

 There is no reasonable alternative to making the payments;

 The business consequences of not making the payment will be serious;

 The type and amount of the payment is consistent with what is customarily sought, made and sanctioned in the country concerned;

 The payment will not expose the company or yourself to legal action under any applicable law or regulation;

 Management is made aware of the payment; and

 The payment is accounted for clearly and accurately. 

That laws must be adhered to is self-evident. To recognize that there are “impossible situations” that will require some kind of compromise requires also a very responsible attitude to one’s staff. In impossible situations (“you don’t get the equipment out of customs without some payment”) management must give employees clarity (and support) on how to handle.  Recognizing this displays realism and pragmatism. As much as bribery should be considered evil and abhorrent, it is far better to have clear rules on “the small bribes” (which is what “facilitation payments” really are) then to take the risk that one’s buyers or representatives are working in a vacuum – leaving it to the individual in the field to decide how to deal with it. And, possibly, create a mess.

Facilitation payments aren’t legal, and the mining conglomerate we use in our example makes that also fully clear. However, at the end of the day it is a business decision. The company understands from the various laws and OECD conventions that in most legal environments those making “facilitation payments” can depend on limited defense arguments provided that (1) the payment is considered lawful in the country concerned and (2) the payments are to facilitate ‘routine government action of a minor nature’. 

This diamond mining company will allow such facilitation payments, but demands that “accurate records have been kept of transactions related to any payments of money or giving of a benefit, detailing:

 The circumstances (conduct) under which the payment was made;

 The value of the benefit;

 The date of which the conduct occurred;

 The identity of the foreign public official or other person the payment was made to;

 Particulars of the routine government action that was sought; and

 The officer’s signature or some other means of verifying their identity.”

One can forcefully argue that a facilitating payment seems to be just another name for a bribe. I find it hard to know where to draw the line – only a cynic or a fool could label payments of millions of dollars to the late kleptocrat Mobutu a “facilitation payment”. The problem arises around the small sums.

For the diamond industry it is interesting to compare the approaches of some of the major suppliers. The De Beers Diamond Best Practice Principles are binding upon the company itself and on its clients. The very strict interpretation of these principles makes life extremely difficult for its clients and, in some ways, makes clients vulnerable. De Beers has made it very specific that violations of these reputational issues may lead to losing one’s sightholder status. The rather extreme zero-tolerance approach is, in a way, an understandable reaction to dramatic shifts in a corporate policy that now (actually since 1999) endeavors for the company to become legally compliant in all its operating environments.

Many corporate executives recognize that the very strict rules may inadvertently and unwittingly create a problem for lower- or mid-level field (out-in-Africa) employees: they are expected to do their job and senior management prefers not to know how things are done. These employees are always at “the mercy” of top management – and are in a no-win position.

Some mining concerns, enjoying the comfort of a long tradition of legal compliance, have adopted a more realistic approach, preferring the provision of enhanced comfort for their own officials. Their rules may not always be consistent with all international “good governance conventions”, but they enable management to be extremely clear and precise in the rules they set for their workers. It allows for effective management; the ultimate responsibility is accepted at the top. It is a policy that prevents accidents.

Most companies put the compliance weight squarely on their own employees, and less on their clients and contractors. One company operates a “help-line”, a phone or e-mail system through which all employees are required to report all serious breaches of ethical or good conduct rules, and all instance of non-compliance with the company policies to a high-level internal ethics panel. This policy recognizes that the world is in a transition process. [I have argued with OECD officials that it is better that “good companies” operate in problematic countries, rather than leave the problematic countries squarely in the hands of the rogue operators.]  The prevailing norms and rules are continuously changed and updated. What is allowed today may well become intolerable tomorrow.

The new diamond industry anti-money laundering compliance rules (and bribing is part of money laundering) require the establishment of auditable anti-money laundering compliance systems. This audit functions enables a company to evaluate the effectiveness of its existing policies and procedures, to determine where additional or amended guidance is needed, and to identify areas where improvement in the company’s adherence to the rules are required. The facilitation payments which are still “condoned” today will probably be fully prohibited within five years down the road. It is a process. It will take years. One must have respect for those companies that recognize that we are not yet in a perfect world and that it is better to strictly regulate the “less perfect” activities than leave the decisions to be made at random by mid- or low-level employees.

All of this comes at a price. Full legal and ethical compliance may well mean that some business opportunities are forfeited. Less money is made in the short run. BHP-Billiton sums it up rather simply: “Proper business conduct is in our long-term interests because it creates loyalty and trust in employees, customers, the communities in which we operate, and other stakeholders.”

These are not easy issues – and there are no easy answers.