Fighting Natural Resource Corruption: The Solomon Islands’ Challenge

 

On September 8 & 9 the Government of Solomon Islands, the UN Office on Drugs and Crime, and the UN Development Program will host a workshop in Honiara to discuss the national anticorruption strategy the government is preparing.  One issue almost certain to arise is how the government can intensify the fight against corruption in the logging and mining sectors. Both sectors are critical to the nation’s economic well-being.  Commercial logging is currently the largest source of export revenues, but earnings are expected to decline sharply over the coming decade as forest reserves are depleted (due in no small part to corruption).  The hope is that increases in the mining of the country’s ample reserves of bauxite and nickel will replace losses from forestry.

Corruption in both sectors has been documented by scholars (here, here, and here for examples), the World Bank (here), and the Solomon Islands chapter of Transparency International.  The government has not only acknowledged the problem but has committed to addressing it.  Its recently released National Development Strategy 2016 – 2035 makes controlling corruption in logging and mining a priority.  As the strategy explains, corruption in the two sectors robs government of needed revenues and deprives local communities of the benefits from the development of resources on or under their lands.

Identifying a problem is one thing.  Coming up with solutions is another, particularly in the case of resource corruption in the Solomons where the combination of geography, poverty, and huge payoffs from corrupt deals make curbing it especially challenging.  The remainder of this post describes the hurdles Solomon Islanders and their government face and suggests ways they might overcome them.      

Entering “map Solomon Islands” into a search engine is the easiest way to appreciate the challenge the country’s geography poses.  The Solomons consist of six main islands and 900 or so small ones spread over 11,000 square miles of the Pacific Ocean.  Air travel between Honiara and the major islands is possible, but service is costly and spotty; reaching the smaller islands can entail a long journey by boat.  Even a wealthy country would find it difficult to monitor logging and mining activities strewn across such a dispersed, inaccessible expanse.

And the Solomons is by no means wealthy.  Its per capita GDP hovers around $3000 making it one  of the world’s poorer nations and meaning the government can neither afford to send officials out to inspect logging and mining sites on a regular basis nor to maintain a permanent presence in areas where loggers and miners operate.  Civil servants are occasionally dispatched to mining and logging sites, and by law they oversee community meetings where those seeking to log or mine on community land explain their plans and seek community members’ assent.  Millions of dollars in profits thus turn on decisions a modestly paid government employee takes, and reports he submits, on events hundreds of miles from the capital and subject to little review or independent evaluation. The risk of corruption is often exacerbated because, thanks to government funding constraints, companies frequently pay the public servant an “allowance” to cover the expenses of traveling to the area they propose to log or mine.

In theory, the local community where the logs will be cut or the minerals taken serves as a check on government decisions, and indeed the laws of Solomon Islands establish elaborate procedures to ensure local communities realize a portion of the monies realized from exploiting the resources on or under their lands.  For example, before a logging or mineral license can issue, the would-be logger or miner must identify those who can speak for the community and then, with the help of these leaders, organize a meeting with those whose land will be affected if a license is granted.  Decisions on whether to permit logging or mining are made by the community with a government official overseeing the process and who, at various stages, must approve of the decisions.  There are several points where community members can veto the grant of a license or have their land excluded from its reach, and a brochure distributed by the Landowners Advocacy and Legal Support Unit in the Public Solicitors Office of the Solomon Islands Government explains the process and how citizens can assert their rights if procedures are not followed.

But as many studies (examples here and here) have concluded, corruption infects the process at multiple points.  The companies, always foreign and always well-capitalized, face communities whose members are often living at or near the poverty line and whose literacy levels are low.  A common pattern is for a company to find one or more local chiefs or other community leaders willing to take bribes in the form of “good will payments” and “advances” to support its applications for a logging or mining license.  Once the license issues, the company will kick back a share of the profits to these local cohorts.  Most often this takes the form of a Solomon Islands corporation established in the locals’ name.  The SI corporation holds the license with the foreign company subcontracted to conduct the logging or mining operations.  Cutting local leaders in on the profits is one way the company insures itself against future scrutiny from the community and the government.  Another is to pay off officials in the regional and central governments responsible for issuing licenses and enforcing their terms.

So far proposals for reducing corruption in the two sectors have focused solely on what government can do by way of law reform and stepped up enforcement.  Drawing from several sources, the National Development Strategy calls for tightening up the anti-bribery laws, creating a specialized anticorruption agency, and enacting “accountability laws” and “new policies” for the mining sector to level the playing field among “potential investors, landowners, concerned communities and government in exploitation of the mineral resources.” Transparency International Solomon Islands and others have seconded these ideas, and there is no doubt that government must play the lead role.  But no government can curb corruption on its own, especially one like the Solomons with limited resources and many challenges to overcome.

Below are some ways the government can share the task of curbing corruption with the private sector and with civil society.  More and more developed countries are requiring firms to be the first line of defense against corruption by instituting anticorruption compliance programs and promptly reporting any corrupt activities they uncover in the course of doing business.  As the experience with the Extractive Industries Transparency Initiative shows, when resource companies are required to reveal all tax, royalty, and other payments to government for exploiting a resource and government discloses all monies it receives, civil society is in a position to help police “leaks.”

None of the suggestions below are original; nor are any foolproof.  But combined with the proposals for strengthening government enforcement in the National Development Strategy they can help curtail if not eliminate corruption in logging and mining in the Solomon Islands.

Shift part of the enforcement burden to the private sector

* Condition the grant and maintenance of a mineral or logging license on the existence of an anti-bribery compliance program.  Solomon Islands could insist that firms wanting to exploit its natural resources establish an anticorruption compliance program of the kind the UN Office on Drugs and Crime, the OECD, and the World Bank recommends.  Where a logging or mineral license is held by a local company and operations are contracted out to a foreign investor, the requirement for a compliance program should extend to the operating firm.  The program should have gifts and entertainment policy that requires periodic disclosure of anything of value above a modest amount provided a government official or tribal chief or other local leaders.  The usual objection to mandating compliance programs is that firms will simply create a program on paper that has no real effect.  That is not always the case, however, and indeed thanks to the recent increase in foreign bribery prosecutions in neighboring Australia, many firms headquartered there have robust compliance programs in place.  Even if a license holder were to create a sham program, it would be at constant risk that an allegation of wrongdoing or random audit would expose the sham and thus lead to cancellation of its license.

* Mandate licensees to disclose any credible evidence it discovers that a principal, employee, agent, or subcontractor has offered or received a bribe or committed any other corrupt act.   If the officers or employees of a licensee are asked for a bribe by a Solomon Islands official, or if they discover that an employee, someone employed a consultant, or other individual associated in any with their company has likely violated the anticorruption laws of Solomon Islands, they should be required to immediately disclose the facts to a responsible official of the Solomons.  There is no reason an honest licensee would not want to blow the whistle on corruption, and if all those who deal with the licensee know it is obliged to report corrupt acts, that itself will help to deter corruption.

Enlisting civil society in the enforcement effort

* Require licensees to disclose ownership information.  Who is actually earning what from a logging or mining license should be a matter of public record and thus public scrutiny, but it is often veiled in secrecy instead.  The secrecy can be removed by two steps.  Step one, addressed in this paragraph, would be to require the public disclosure of the natural persons (beneficial owners in antimoney laundering jargon) owning more than a specified share, say 10 percent, of any corporation holding a logging or mineral license or anyone who exercises a controlling interest in the corporation.  Because it is often suspicioned that Solomon Islands officials have secret interests in licensees, licensees could also be required to disclose any interest, no matter what the amount, held by any SI public official.  Where the licensee has subcontracted resource development, the ownership disclosure requirements could “flow down” to the subcontractor.

* Compel licensees to publicly report all payments to government and the government to disclose all payments received from licensees.  This is step two in ensuring that Solomon Islanders know who is earning what from the exploitation of the nation’s resources.  It is the basic principle behind the Extractive Industry Transparency Initiative, permitting different government agencies, civil society, and international partners to see if and where resource revenues are “leaking out.”   The IMF’s Guide on Resource Revenue Transparency 2007 provides detailed guidance on how to implement transparency on both the company and government side.

2 thoughts on “Fighting Natural Resource Corruption: The Solomon Islands’ Challenge

  1. Pingback: Fighting Natural Resource Corruption: The Solomon Islands’ Challenge | Anti Corruption Digest

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