BHP probe puts business ethics on trial

MINING giant BHP Billiton’s shock revelation that it is under investigation by US regulators over corruption claims has again cast a long shadow over Australian companies operating overseas.

BHP has so far refused to provide details of the matter, other than to declare it does not involve China, or its sales and marketing activities, and that it initiated the investigation after uncovering evidence of “possible violations” of anti-corruption laws and the company’s code of business conduct.

However, it is widely understood to relate to allegations it paid up to $3.5 million in ‘tea money’, or unofficial payments, to corrupt officials to secure access to bauxite exploration permits in Cambodia that it has since relinquished.

When the allegations were first aired in Cambodia in 2008, BHP rejected the tea money claim outright and said the only payment it had made was a $US2.5 million contribution to a social development fund.

Despite there being an active investigation under way, BHP boss Marius Kloppers last week took the extraordinary step of telling London’s Financial Times that he believed the matter only had the potential to have a “very modest” impact on the company.

That may come back to haunt him, coming hot on the heels of Rio Tinto iron ore executive Stern Hu’s conviction for accepting bribes and stealing trade secrets in China, which has been seized on by anti-business activists.

While Australian companies generally enjoy a good reputation overseas, entanglements in developing nations have, sometimes unfairly, tainted several big names in recent years.

The most glaring recent example of Australian corporate misconduct overseas is arguably wheat exporter AWB’s provision of $300 million in illegal kickbacks, in the form of false transportation fees, to the regime of ousted Iraqi dictator Saddam Hussein in return for wheat contracts.

The scandal destroyed AWB’s international standing and also dragged in BHP, which had struck a deal with AWB in the mid-1990s to provide $5 million worth of wheat to Iraq in the hope of securing oil exploration permits.

BHP subsequently assigned the rights to the $5 million wheat debt to little-known Tigris Petroleum, a company set up by former BHP executives, which then secured joint ventures with BHP and other oil firms in several Iraqi oil projects.

Simon Longstaff, executive director of the St James Ethics Centre, said while corruption may be rife in some places, companies should never be confused into believing it was appropriate.

“Some people make the mistake of thinking that because corruption is widespread, it is also widely approved by the local people ... as part of the culture. But if you ask people ... they realise that this is something that blights their condition.

“So companies need to be very guarded and not think that because a practice is widespread, that it’s automatically admired and ... that it’s appropriate to engage in it.”

Dr Longstaff said the United Nations was currently drafting a global compact on principles for social investment that would address the grey areas between local practice and appropriate behaviour. Signatory companies would be bound to honour the guidelines contained in the compact, and report on their adherence to them.

The compact would be more comprehensive than the existing Global Mining Initiative, which provides miners with a universal charter of corporate, social and environmental best practice.

In the interim, Dr Longstaff said there was an even simpler way for companies to test whether a requested payment was legitimate.

“You just ask for a receipt,” he said.

Sometimes, allegation and problems stem from operating in countries with immature commercial and legal frameworks and a fluid political environment. Changes of government, or a re-interpretation of the existing rules, have caught out numerous WA companies in recent years, particularly with regard to retrospective allegations of tax evasion.

One of the more notable such incidents occurred four years ago, when a complaint by Greens Senator Christine Milne sparked a federal police probe into a $US100 million payment by Woodside to a new regime in Mauritania following a military coup in that country.

The “profit oil bonus” was paid to settle allegations that Woodside and its partners in the $1 billion Chinguetti oil project had been granted improper tax concessions under the production-sharing contract signed with the previous government.

The new regime also imprisoned the former Mauritanian energy minister who signed the contract, accusing him of accepting bribes.

Though Woodside became a favourite target of anti-globalisation activists, a two-year investigation by the Australian Federal Police cleared the company totally.

At a recent WA Business News forum, Forge Group chief Peter Hutchinson said there was always a risk in some places, such as parts of Africa, that the rules would be changed or re-interpreted without warning. The best defence was to operate the same everywhere and maintain detailed records.

“My advice is play by the rules, but even when you do that, the possibility of an ambit claim by government is a real risk,” he said. “You mitigate that risk by making sure your records are proper ... all your i’s are dotted, all your t’s are crossed, all your governance is in place.”

According to business ethicist Chris Perryer, from the University of WA’s business school, operating in such environments can be a “real minefield”.

Even sticking scrupulously to guidelines set down by groups such as Transparency International, was no guarantee of avoiding such entanglements, he said.

“You can be doing the right thing by the norms of your own society and find yourself out of step overseas, or you can keep in step with what’s going on overseas and find yourself out of step at home,” Dr Perryer said.

“It’s different for every country, it’s different for every industry, and it’s different every time there is a change of government either at home or in the host country.”

He said operating everywhere as if it was your own backyard was a sound starting point, but that companies must also still take into account the added layer of complexity of local cultural norms.