Screening the beneficial owners and integrity of companies applying for extractive rights is key to tackling corruption in the oil, gas and mining sectors

Who are the real owners of the companies applying for extractive rights? How clean is their legal and integrity track record? What are their political connections? These are the questions that governments need to look into when deciding whether a company is suitable to hold rights to explore and extract the country’s natural resources.

Transparency International’s Accountable Mining Programme has just published a guide on beneficial ownership and integrity screening of companies applying or bidding for extractive rights.

A significant problem

The oil, gas and mining industries are known to be among the most corruption-prone sectors worldwide. The Pandora Papers leaks reveal several examples of how shady businesspeople and politicians hide their ownership of extractive companies or use opaque corporate structures to conceal suspicious and corrupt payments. Hidden company ownership is a major corruption risk. NRGI’s research into 100 corruption cases in the oil, gas and mining sectors found that over half involved hidden owners with political connections.

Holding a stake in a company that holds or is about to secure lucrative natural resource rights can pay off handsomely. It is no surprise, then, that one in four cases of corruption in the extractive industries takes place during the licensing and contracting phase – the moment when governments decide whether to grant a company the rights to explore and extract the natural resources of the country.

Screening the companies and the people who benefit and control them as part of the licensing process is a key measure to protect the mining sector from corruption by uncovering and keeping out high-risk companies. The Accountable Mining Programme’s new guide sets out in detail what screening looks like and why it is so important.

Without screening the integrity, political connections and legal record of companies applying for a licence and their beneficial owners, governments may inadvertently hand over rights to the country’s valuable natural resources to companies that:

• are owned or controlled by government officials or their family members, representing a conflict of interest and potentially abuse of office
• have used or whose directors have used bribery and corruption to pursue their business interests in the past, including to secure licences and win contracts
• have a history or whose directors have a history of illegal activity or corporate misconduct, including tax evasion, money laundering or significant environmental or human rights breaches

BO and integrity screening makes it harder for corrupt individuals in politics and industry to benefit from valuable exploration and extraction licences and contracts – and to detect those attempting to do so.

It’s also good for government

BO and integrity screening can also improve the quality of companies interested in doing business in the country by giving those companies the confidence that the government is serious about attracting responsible and ethical operators and will not tolerate corruption.

This can improve the investment attractiveness of the country to companies that may otherwise be concerned about the risks of competing against dishonest competitors or about the integrity standards in the country.

BO and integrity screening therefore creates incentives for a race to the top – and avoids a race to the bottom – in company conduct and standards, levelling the playing field for those companies that are committed to transparency and integrity.

BO and integrity screening helps governments save money by identifying and keeping out high-risk companies that could otherwise cause significant harm and expense through corruption, tax evasion and non-compliance with environmental and social regulations if they were allowed to operate.

Going beyond transparency to combat corruption

Transparency of beneficial owners is essential but just the first step. To effectively contribute to a more accountable mining sector, government authorities responsible for licensing decisions need to use this information to screen the beneficial owners and integrity track record of companies applying or bidding for extractive rights.

This guide will help civil society organisations and integrity champions in government take the next steps and promote BO and integrity screening in their country.

Learn more about Transparency International’s work on this topic here.