The latest in a long time of court cases should be pushing security and human rights risk up the risk agenda of juniors, mid- caps and majors alike.
Dr William Wiley and Oliver Cushing, Tsamota Ltd.
On the 4th July 2013 the Ontario Supreme Court of Justice ruled that a trio of actions brought against Hudbay Minerals Inc, alleging breaches of human rights against indigenous Guatemalans, could be tried in Ontario. On the 4th December 2013 the British High Court African Barrick Gold failed in its attempt to have a case brought against it alleging liability in the deaths of six Tanzanian villagers thrown out- an attempt that the judge disparagingly described as a ‘Tanzanian Torpedo.’
The Hudbay decision relates to claims made by indigenous Guatemalans of rape and murder allegedly committed by private security personnel. The first alleged incident occurred in 2007, when it is claimed that private security personnel acted in support of government police and military units to enforce an eviction notice at the Fenix property, which was at the development stage and not an operating mine.
It is asserted that ensuing violations occurred through to 2009. Compañía Guatemalteca de Níquel SA (CGN) owns and operates the Fenix property, and was acquired by Hudbay in 2008 through the amalgamation of Hudbay with Skye Resources Inc (later renamed HMI Nickel Inc).
However, Hudbay denies that private security contractors participated in the eviction and asserts that the action was non-violent. It sought unsuccessfully to have the case dismissed on the grounds that:
It was wrong to hold the company vicariously accountable for the actions of the employees of its Guatemalan subsidiary;
The company owed the plaintiffs no duty of care; and
The plaintiffs’ case had no chance of success.
In May 2011, an armed group of 800-1,500 people invaded ABG’s North Mara mine in Tanzania. ABG later reported that the company contacted the Tanzanian National Police at the time of the incursion to request police protection. The subsequent police deployment attempted to contain the situation with warning shots and tear gas.
The situation escalated and, according to an ABG press release dated May 30, 2011, “a violent confrontation ensued… [and] police reported that five intruders were killed”. The July 2013 legal proceedings allege that ABG and its subsidiary, North Mara Gold Mine Ltd, are complicit in the deaths and injuries of local villagers at the hands of the police called to the mine by North Mara.
The aforementioned examples share themes that ought to resonate across the mining world. First, the cases are being pursued in the domestic jurisdictions in which the two companies trade – Canada and the UK, respectively – which are two of the world’s largest mining capital markets.
Second, the litigation brought against the companies alleges corporate complicity in very grave human-rights abuses, amounting to violations of criminal law perpetrated by individuals not directly employed or otherwise under the command of the commercial firms.
It could be tempting to dismiss both cases as isolated cases or unmerited attempted shakedowns of responsible corporate citizens. However, the examples cited here are the latest in a series of cases brought in the UK, Canada and the US that have attempted to hold mining and oil & gas companies culpable for the activities of police, armed forces and private security contractors employed, or otherwise responding to the needs, of resource extraction firms. Some cases have been dismissed by the courts. Take the example of Anvil Mining Ltd and MMG Malachite Ltd, a wholly owned subsidiary of Minmetals Resources Ltd (MMR), which acquired Anvil in February 2012. In 2012, the Canadian Supreme Court refused to hear an appeal in a class action alleging that Anvil had provided material support to the perpetrators of a massacre in the Democratic Republic of the Congo.
In other instances, corporations have settled out of court. To cite one example, London- listed Monterrico Metals plc avoided trial in 2011 – and reached an out-of-court settlement “without admitting liability” – when the firm was accused of complicity in the torture of 33 Peruvian farmers.
Regardless of their outcome, accusations of complicity in human-rights abuses and criminal acts levelled against natural resources firms invariably result in the loss of the company’s reputation and shareholder value.
Such accusations divert valuable company resources away from core activities, undermine community and other strategic relationships where the allegations have been made and undermine efforts to raise critical capital and the company’s share price. Human-rights abuses should be high on the risk-management agenda of all miners and juniors.
A number of voluntary codes have emerged in recent years to supplement national and international laws governing security-related matters. These include the UN Guiding Principles on Business and Human Rights and the International Council of Mining & Metal’s (ICMM) Ten Principles and the Voluntary Principles on Security and Human Rights, which deal specifically with the management of security matters. These and other guidelines offer a framework around which mining firms can build human-rights policies linked to the physical security of their operations.
In and of itself, signing a voluntary code will not alleviate the sort of debacle which has befallen ABG and Hudbay. Indeed, CGN, the company through which Hudbay acquired the Fenix property, was itself a signatory to the ICMM’s principles.
Reducing risk starts with ensuring that human- rights violations and criminal acts are not committed by employees, contractors and those associated with operations through training, external assurance and management. While most firms sub-contract their physical security arrangements to private or state forces, there can no longer be any doubt that a sub-contractual arrangement will not, in and of itself, outsource its responsibility, and therefore will give rise to potential legal and reputational risk.
Before engaging a security provider, the provider’s internal management, compliance and training procedures should be closely vetted by the contracting authority. Firms issuing contracts to private-sector providers should establish whether the contractor is a signatory to the International Code of Conduct for Private Security Providers.
Contracting authority oversight should continue through the course of the security contract, with in-house security managers maintaining continuous contact with the security provider. From the perspective of law and public opinion, there is little distinction to be drawn between privately contracted security providers and public security forces acting on behalf of a resource firm.
Third-party assurance, such as that provided by Tsamota, can be called upon to help companies evaluate their entire value chain to ensure compliance with local and international laws, relevant voluntary codes and internal human-rights policies. Companies operating in conflict zones and otherwise unstable environments should consider publishing third party assurance and investigative reports.
Beyond their provision of subject-matter expertise, external consultants should be viewed as tools to help companies communicate their commitment to best security practices to local communities, governments and civil-society groups.
When authored by experts who are drawn from inter-governmental-organisation backgrounds such as the UN, third-party assurance and investigative reports lend deeper credibility to their clients’ security arrangements.
Irrespective of the nature of the relationship between a company and government security forces – be it defined by a memorandum of understanding or less formal arrangements – in the forum of public opinion, a company will be held accountable for the actions of police and military units which are engaged in the protection of the company’s investment in the field.
Indeed, government security forces, namely police and military units, were involved in all of the alleged incidents outlined in this article. Therefore companies are best advised to support the public security forces by ensuring that they are trained to the highest standards in human-rights awareness and are aware of their responsibilities under national and international law. Private security guards must be similarly trained, as should any public-facing employees, whether they are directly employed or contracted.
There is a clear trend towards companies being held accountable in the courts of law and public opinion for the activities of private as well as governmental security forces associated with their operations – even where the firm enjoyed little or no control over security operations.
Given that natural-resources companies tend to work in more challenging security and political environments, this is a risk that they ignore at their own peril. For this reason, mining companies would be well advised to evaluate their security arrangements and seek to address weaknesses in their procedures that that might lead to accusations of complicity in human-rights abuses and criminal acts.
Dr William Wiley is the managing director of Tsamota Ltd. After serving in the Canadian army, he retrained as an international humanitarian lawyer and has worked as a senior investigator for multiple international war-crimes tribunals, including in the former Yugoslavia, the DRC and Iraq. Oliver Cushing is manager of Tsamota’s natural-resources division, which provides security and human-rights assurance and training to the mining and oil & gas sectors.