If a bridge collapses soon after construction, the contractor would be blacklisted. If someone cheats a bank, they will not be allowed to manage public money, whether in a bank, mutual fund, insurer, or even as a service provider. But if someone illegally mines our shared inheritance of mineral wealth, in many parts of the world, there is no such prohibition.
Oil, gas & minerals are inherited wealth, our family gold. States are merely trustees over the mineral wealth for the people and especially future generations. As custodians of this inheritance, it is our duty to ensure that our children inherit either the mineral wealth itself or its value. Mining / extraction is effectively the sale of this wealth. Royalties, auction premia, and the like are mineral sale proceeds, financial wealth in exchange for the family gold. And the extractor is merely an outsourced service provider, converting our mineral wealth into financial wealth.
If Zero Loss of our shared inheritance of mineral wealth is the goal, then it is the essence of managing wealth that the people involved must be upright persons. This requires a process of due diligence into the entities who are involved in managing our wealth. The principal entity is the mining leaseholder and those that control the leaseholder – related parties, directors, officers, etc.
Integrity due diligence has multiple components. Beneficial ownership verification is required to understand all those who are involved in managing the wealth conversion process. Fit & proper person tests, including criminal and legal background checks, are applied to these persons and entities. If someone has committed illegal mining or corruption in one country, they cannot be allowed to manage mineral wealth anywhere – they are not fit or proper.
Further, conflict of interest checks, especially for Politically Exposed Persons (PEPs) who are also part of the extraction process is essential to ensure fair deals for mineral owners and their future generations. Our shared inheritance cannot be managed by known offenders. It is irresponsible.
The World Bank published a practical manual for Integrity Due Diligence based on its experience with the Financial Action Task Force. The manual, Licence to Drill: How to Reduce Corruption in Extractives Sectors, recommends beneficial ownership verification, criminal and legal background checks and conflict of interest checks. We recommend the full implementation of Integrity Due Diligence while maintaining complete transparency and accountability and in accordance with the global norms against corruption and conflict of interest.
Transparency International Australia has published a Guide to Promoting Beneficial Ownership and Integrity Screening in the Mining Sector
In 2022, the Mineral Inheritor’s Rights Association (MIRA) organized a webinar to discuss this issue. Speakers were Lakshmi Kumar of Global Financial Integrity and Patrick Bond, political economist. The discussion was facilitated by Rahul Basu of Goa Foundation. Simon Taylor and Monday Osasah made useful interventions. Watch the recording here.
In India, we have started a campaign for implementing Integrity Due Diligence in extractives along with the Mineral Inheritor’s Rights Association (MIRA), the Goa Foundation, Environics Trust, Common Cause, and Himalayan Niti Abhiyan. We make two sets of demands.
First, illegal mining must be considered a grave offense on par with offenses under other economic laws such as the Foreign Exchange Regulation Act (FERA). In particular, it should be recognized as a predicate offense that can give rise to money laundering under the Prevention of Money Laundering Act (PMLA).
Second, we must follow best practices from other sectors that manage wealth, e.g., the financial sector. Fit & Proper Person Tests are routinely applied throughout the financial sector supply chain, even for intermediaries such as advisors, distributors, and payment processors.
So far, the state of Rajasthan has responded to our demand letter by taking a decision to require bidders for mineral leases to assert that they have not been found mining illegally.