Monthly Archives: August 2015

Ownership of privately-held companies: privacy versus transparency


Beginning in 2016, corporations in the United Kingdom will have to disclose the identity of their beneficial owners.

It started with executive salaries. Once thought to be a matter of great privacy, many countries now require disclosure of corporate salaries for executives at publicly-traded companies. Today no one, except perhaps the anachronistic leaders at soccer’s ruling body, FIFA, finds that strange.

Next up? Ownership of privately-held companies. Beginning in 2016, corporations in the United Kingdom will have to disclose the identity of their beneficial owners. This is Prime Minister Cameron delivering on his 2013 promise at the G8 Summit to tackle tax evasion and corruption. Many are raising privacy – and even security – concerns, but business people are hoping to see lower risks and better insight into the transactions they contemplate. The UK law is being mirrored elsewhere in Europe, and many smaller companies are getting out in front of the change by voluntarily identifying their beneficial owners. This is one more trend toward transparency that we’re not likely to see reversed.

Elsewhere in the world, owners of private companies can continue to keep that information hidden from public view. While many argue that this is a fundamental principle of financial privacy, it has also permitted extreme abuses by criminals and kleptocrats. The ability to launder illicit funds has made it more difficult to ensure accountability. A World Bank report that looked at over 200 grand corruption cases spanning three decades found that fully 70 per cent involved accounting fictions to hide beneficial ownership and the true source of funds. As David Cameron put it bluntly at the time of the G8 Summit, “[i]t’s a world where, regrettably, corrupt government officials in some countries and some corporations run rings around the letter and the spirit of the law to rip off hard working people and to plunder their natural resources.”

The UK will require companies to record their beneficial owners in a public central registry maintained by the government. Companies with securities listed on a UK-regulated market (or another market subject to similar disclosure requirements) are exempt from the requirement. In total, an estimated 3,190,000 UK companies will need to register their beneficial owners by early 2016; a reported 2,960,000 of these have fewer than four shareholders.

The new UK law defines “beneficial owner” broadly, and includes any individual who ultimately owns and controls the company, whether by directly or indirectly holding more than 25 per cent of the company’s shares or voting rights, or by otherwise exercising control over the company’s management. That means that it’s not just so-called “shadow directors” who are being dragged into the light; indirect minority shareholders who may not even realize that they have sufficient controlling interest in a company to be considered a “beneficial owner” also fall within the scope of these laws.

The European Union’s parliament passed its 4th Money Laundering Directive in June, requiring member states to enact similar corporate disclosure laws within the next two years: Norway and Denmark have also already done so. Bipartisan legislation with the same goal has been introduced several times in both the U.S. House of Representatives and Senate, although those efforts have stalled. They have been opposed by lobbyists arguing that such a registry would be too costly to administer, whereas in Delaware, one of the states best known for shielding shell corporations, half the state legislature has written to their congressional delegation urging them to support the bill. In spite of privacy concerns, many in the business world support the new requirements. Sunshine laws make it easier for companies to conduct due diligence on their partners. Knowing who actually owns and controls a business partner is already a requirement for many well-governed companies under money-laundering, terrorist-financing and anti-bribery laws. Shifting the burden to the individual company to disclose its own beneficial owners is expected to simplify compliance in international business and improve investor confidence.

Forty years ago the US Congress passed the first anti-bribery legislation over the same sorts of protests we’re hearing from some quarters now. In time the UK and the EU followed the US lead. It is unfortunate today that the US seems to be bringing up the rear amongst countries working toward greater transparency in this respect. Even a paralyzed Congress should be able to act on an issue with so much connection not only to good business practices, but also to tracking down and blocking the financing of terrorism.

Alexandra Wrage is the president of TRACE, an anti-bribery organization. TRACE has collected beneficial ownership information on thousands of entities for 15 years and the sky hasn’t fallen. This article originally appeared in Forbes.

The right to say “No”: Indigenous rights experts weigh in on community consent

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Wearing traditional Kichwa dress, a group of indigenous women walk to their shared garden plot deep in the Peruvian Amazon.

Photo: Percy Ramirez/ Oxfam America Wearing traditional Kichwa dress, a group of indigenous women walk to their shared garden plot deep in the Peruvian Amazon. Photo: Percy Ramirez/ Oxfam America

In order for FPIC policy commitments to have any real meaning for communities, companies must recognize that communities may choose to say no to oil or mining development.

“I think the issue of consent goes to the very core of the rights that indigenous peoples are entitled to… because it is central to the whole notion of hegemony over property, culture, and I think their very existence.”

-Rose-Marie Belle Antoine, Chair and special rapporteur on the rights of indigenous peoples for the Inter-American Commission on Human Rights

Many mining companies are promising to get the consent of indigenous peoples before setting up operations on their lands. They’re changing their policies, but will that actually give communities power? Will communities actually be able to say no?

Though companies have made improvements in this area recently, this remains a critical question.

In July, Oxfam welcomed Inter-American Commission on Human Rights (IAHCR) chair Rose-Marie Belle Antoine and United Nations special rapporteur on the rights of indigenous peoples Victoria Tauli-Corpuz at the launch of our Community Consent Index. During the event, both called on companies and governments to recognize the right of indigenous peoples to give or withhold consent for oil, gas, and mining project development affecting their lands and natural resources. Free, Prior and Informed Consent (FPIC) is fundamental to indigenous peoples’ realization of their rights to self-determination and to development. As Tauli-Corpuz remarked, “the very notion of development can be viewed differently between indigenous and non-indigenous peoples.”

Last month I blogged about our Community Consent Index, which reviews the public policy commitments of 38 oil, gas, and mining companies around issues of community engagement and rights. The report documents an increase in company policy commitments to FPIC, with the number of corporate commitments jumping from five to 14 in just three years – while also noting that current commitments leave significant room for improvement. Improvements are particularly needed to provide details about what FPIC commitments will look like in practice, as well as clear guarantees from companies that they will withdraw from a project if a community does not support it.

At the report launch, both special rapporteurs were clear that the right to withhold consent is fundamental to the FPIC principle.

“Of course it [FPIC] also includes the possibility that indigenous peoples will finally say no, because that’s a whole range of what Free Prior and Informed Consent is. It doesn’t mean that every time that that process is undertaken that they will have to say yes to the project,” noted Ms. Tauli-Corpuz. Commissioner Antoine said it more plainly:

“Yes, you have a right to say no. It’s not a question. Otherwise what is the meaning of consent?”

Tauli-Corpuz emphasized the importance of inclusivity in FPIC consultation processes. She noted that seeking a community’s consent should entail “a whole series of consultations” and engage “various sectors in the community,” explaining that participation should, “not be limited to just talking to the elders or the men, but should also include talking to the women as well as the children who will also be the ones who will benefit or suffer from the legacies of operations.”

Commissioner Antoine noted that in just the last two years the IAHCR held 15 thematic hearings on the rights of indigenous peoples related to extractive industries, and that in every hearing FPIC emerged as a contentious issue. In Latin America, FPIC and community consultation around oil and mining projects remain hot button issues. Some countries—like Peru and Chile—have strengthened policies on consultation with indigenous peoples in recent years, but serious implementation challenges remain.

“The Oxfam report mirrors the experience of the commission in finding that there are still large gaps in how states and companies implement these clearly denunciated rights, even when there are national laws and company policies in place,” Commissioner Antoine pointed out. “…Companies, like states, often believe that once some kind of consultation has been held—even where there is opposition from indigenous peoples—they can go ahead because there is some sort of ‘license’.”

In order for FPIC policy commitments to have any real meaning for communities, companies must recognize that communities may choose to say no to oil or mining development – and that they have the right to do so. With most corporate FPIC policies freshly minted, it remains to be seen how things will play out once they’re tested. Oxfam and others have an important role to play in holding companies’ feet to the fire.

If you would like to hear more from the special rapporteurs on the issue of community consent you can view a recording of the Community Consent Index launch here, and see Tauli-Corpuz’s full video statement here.


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South Africa: Mining people for profits

17th August 2015

Opinion – Terry Bell

Large scale redundancies in the South African mining sector, running to tens of thousands of jobs, are probably inevitable. But only because of the system in which we have to operate.

Even in the gold sector, there will be mines and shafts that remain profitable without job losses, but each shaft and each mine will be considered separately. And, as further mechanisation is introduced, there will be less need for workers.

This is the stark reality that was the basis of the crisis talks convened last week by minerals minister Ngoako Ramathlodi. But it is a case of better late than never, because such talks, involving all parties, should have been held at least two or three years ago when it became obvious that a crisis was looming.

In the aftermath of Marikana in August 2012, renewed militancy among miners who demanded – and deserve – a decent living wage and better conditions, meant that the cost to companies increased. However, it is the fiduciary duty of company directors to maximise profits for shareholders and that means, where possible, costs must be cut.

Since South Africa’s historically massively profitable mining industry was built on cheap labour, wages constitute the greatest cost. But when it becomes possible to operate by cheaper means, the system demands that jobs must go.

In reaction, there have been calls, by among others President Jacob Zuma, for the mining companies to exercise “social responsibility”; to, in effect, put the welfare of people before profits. But the system does not allow for this and it would probably be illegal, and certainly actionable, for companies to deprive their shareholders of dividends in order to retain workers who are unnecessary.

This is not a moral judgment, merely a statement of fact. The free market, capitalist, system demands that profit be the only priority. As the late Milton Friedman, father of what is now labelled neo-liberalism, once noted: Any company director who prioritises social responsibility should be sacked on the spot.

In business, therefore, it is the bottom line that matters. This makes for an exploitative and potentially brutal system in human terms. North American legal expert professor Joel Bakan made this clear in his book, The Corporation, when he wrote that if people behaved in the way that corporations have to, they would be locked away as dangerous psychopaths. And he added the ironic fact that, in law, companies are legal persons.

It was this reality that gave rise to trade unions as reactions to a system in which workers could become mere disposable ciphers. As a result, we have what has often been described as “constructive tension” between opposing interests in the workplace.

As a result, in a parliamentary democracy, governments are faced with having to perform a balancing act, needing both the tax and other revenues from companies and the voting support of workers. In South Africa, with local government elections looming, workers have a little more leverage with a government that still remains committed to maintaining the system of competition and the accumulation of profit.

This is the background to the crisis talks that tended to concentrate on the gold mining sector. Ramathlodi will be desperate to have companies and unions strike a compromise that would avoid both a labour and capital strike.

Mining unions have put the moral argument that during the boom times their members were not rewarded, while company executives and shareholders profited enormously. Now, at a time of an economic slump, companies wish to retrench their members. Within the system, it is an argument that has no power.

However, for any honest compromise to be struck, the gold producers will have to be candid and open about their bookkeeping. Transparency is called for because, over the past decade, gold prices, while fluctuating, have soared. At the same time, the exchange rate value of the US dollar to the rand has more than doubled. What this means is that the gold price in 2005 reached a peak of $510 and averaged less than $500 when $1 bought R6. Last week, when the crisis talks were held, the gold price was still above $1,000 while $1 was worth R12.70.

In rand terms, what this means is that ten years ago, gold earned roughly R3,000 an ounce; today more than R12,000. And the overwhelming bulk of mining costs are in rands, the income in dollars.

However, appropriate rates of pay and decent conditions for miners have, in many instances, become more expensive than machines. So the march of mechanisation will continue. And that means jobs will be lost, never to return, even if commodity prices rise. Once again, it will be workers who will suffer in a world where the wage and welfare gap continues to grow.

The opinions expressed in this article are solely those of the author. No inference should be made on whether these reflect the editorial position of GroundUp.


How developing countries are paying a high price for the global mineral boom

Soaring worldwide demand for the minerals used in electronic devices such as smartphones and laptops has left a legacy of social conflict and human rights violations across Asia, Latin America and Africa. Global atlas of communities at risk from mining and oil companies.

Mining conflicts around the world infographic
Mining conflicts around the world. Click to expand or download here. Source: EJATLAS.ORG Photograph: Pete Guest for the Observer

Tailings: Dam breaches increasing in frequency


WASHINGTON, DC – A new report available at Earthworks Action notes that catastrophic tailings spills are occurring with increasing frequency around the world. Moreover, the new study, The Risk, Public Liability, and Economics of Tailings Storage Facility Failures, points out the failures of regulators and engineers to create truly best practices to minimize financial and environmental risks.

The report says that half the serious dam failures, 33 of 67 in the past 70 years, have occurred in the 20 years between 1990 and 2009. It predicts there will be a further 11 failures costing approximately $6 billion between 2010 and 2019. The average cost of each spill is $543 million, as measured by the attempts of regulators to recoup cleanup costs from mine operators.

The study says, “The increasing rate of tailings dam failures is propelled by, not in spite of, modern mining practices.” The size of tailings management facilities, particularly those in excess of 5 million m3, is to blame. Such large ponds have grown to allow mining of lower grades of ore.

The outlook is gloomy: “Mining companies cannot afford, and cannot secure insurance to cover, the costs of catastrophic failures. Losses, both economic and ecological, are in large part either permanent and non-recoverable, or recovery – to the extent physically possible – funded by public monies [in the US].”

Earthworks Action ( has released the new report to commemorate the one-year anniversary on Aug. 4, 2014, of the Mount Polley tailings dam failure.