Australia: global mining leader falls short on due diligence

22 March 2021

Australia holds itself out as a world-class destination for mining companies. But do we really know who is coming here to mine?

To truly understand the character and track record of a company applying for the right to mine in Australia we need to know if they have had a history of corruption or non-compliance overseas. It seems logical, but at the moment regulators do not check a mining company’s overseas track record before deciding whether to grant it a licence to mine in Australia. It is a gap that leaves our doors wide open to corrupt players with poor social or environmental track records, increasing risks to our communities, human health, Indigenous cultural heritage, environment, and the public purse.

Transparency International Australia first made the call for Australian governments to strengthen the integrity due diligence done on mining applicants back in 2017. This was when we released our research showing how a lack of integrity due diligence conducted on companies seeking to obtain mining rights in the states of Queensland and Western Australia was a real corruption risk. We identified that leading practice due diligence includes investigations into a mining company’s integrity and corruption track record, their environmental credentials both in Australia and overseas, and investigations into the company’s beneficial owners – the individuals who ultimately control and benefit from the company.

Late last year, a report by the federal government’s independent economic and regulatory advisory body, the Productivity Commission, agreed with our findings.

After reviewing best practice regulation in the mining sector globally, the report concluded that a company’s failure to comply with laws – whether in Australia or abroad – may indicate that it is not suitable to hold a licence in Australia. The report found that while all Australian jurisdictions undertake some due diligence, none fully follows leading practice.

Integrity due diligence is leading practice

The Productivity Commission’s report recognised that if proper due diligence is not undertaken, there is a risk that operators who consistently fail to meet environmental or community standards may still be granted the right to mine. The report outlined what leading practice due diligence looks like.

Leading practice due diligence:

covers the companies related to the licence applicant (i.e. the parent company and beneficial owners)
considers a range of historical behaviour when deciding who gets the right to mine. For example, previous compliance with licence conditions, health and safety and environmental legislation, past criminal conduct, technical competency, and past insolvency
considers a mining company’s track record in other domestic and international jurisdictions and
involves regulators taking a risk-based approach; allocating resources efficiently to focus greater attention on the companies that present the highest risks

This is a welcome recognition that Australia has some work to do. It matters because failing to meet this standard can have adverse consequences on the environment, on communities, and on the economy.

Why is it important?

The communities – Indigenous and non-Indigenous – that will be affected by mining projects deserve to know that governments are looking carefully at the complete domestic and international history and compliance track-record of companies to make sure they are fit and proper and will be responsible operators before granting them the rights to explore and mine in Australia.

Natural habitats, communities, Indigenous culture, people’s health, homes and livelihoods, and the contribution mining can make to the economy are all at stake in licensing decisions. Integrity due diligence is an important mechanism to keep out dishonest companies who do not respect people, the environment, or the law.

How do we do this in Australia?

The Productivity Commissioner’s findings present Australia with a clear message: integrity due diligence is leading practice. If Australia wants to continue to be a leader in mining, it needs to step up and implement effective integrity due diligence on mining companies.

The changes required to get there need a coordinated approach and commitment from different levels of government. While mining regulation is the responsibility of each Australian state and territory, the law governing companies, the Corporations Act 2001 (Cth), is the responsibility of the national government. A coordinated approach is required to ensure any regulatory changes are consistent across the country and that state government licensing officials have access to the information they need to run effective background checks on companies applying for mining rights.

Coordination between state and federal governments and within state departments will help to make the process effective and efficient utilising existing systems and processes where possible and taking care not to place regulators under unnecessary administrative burdens. A risk-based approach to integrity due diligence would allow background checks to be targeted where the risks are highest – either because of red flags about the company or because, for example, they will be operating in an area of high environmental, social or cultural sensitivity.

Our engagement with mining companies in Australia has shown us that most companies are already conducting due diligence checks on their suppliers and business partners. We are also seeing that mandatory environmental and human rights due diligence for companies is fast becoming an international norm.

The means of conducting leading-practice due diligence in Australia is available – progressive mining companies use technology to conduct beneficial ownership and politically exposed persons checks and assess a supplier’s risk of non-compliance. What is holding governments back from doing these checks on companies proposing mining projects in Australia is a lack of political will.

Time for action

Our leaders need to show the public that they are serious about safeguarding integrity in Australia’s mining sector and are making decisions about who gets the right to mine that are in the public interest. To do this, they need to put in place systems to ensure that mining companies, and the individuals behind them, with a history of repeated non-compliance or corruption are not granted mining rights in Australia.

Transparency International Australia’s research has shown that there are real risks associated with inadequate due diligence checks on mining licence applicants in Australia. Now, with the Productivity Commissioner’s report, there really is no question about what is required from governments and regulators. If Australia wants to be a leader in mining, it needs to adopt leading practices. And that includes integrity due diligence.