MARKETS SPECTATOR: Rating the corruption risk

Citigroup’s Elaine Prior has identified corruption and bribery threats in public companies with some of the ASX's biggest names 'at risk'.

Transparency International, the organisation dedicated to rooting out corrupt practices, defines corruption as “abuse of entrusted power for private gain”.

Citigroup analyst Elaine, Prior in a 120-page report, has identified 100 ASX-listed companies that are “at risk” of bribery and corruption because of the countries they conduct their operations.

“Smaller Australian miners are expanding their presence in Africa and Asia, while petroleum companies are also operating in some challenging jurisdictions,” writes Prior.

“Some of these companies may have inadequate processes for addressing bribery and corruption risk," she says. "Other smaller companies may have appropriate practices in place, but more rigour around policies and disclosure may help to mitigate risks, and provide clearer guidance to employees, perhaps including over facilitation payments.”

Companies classified 'at risk', according to Prior, are those that provide little or limited information, include Aquarius Platinum, AWE, Beach Energy, Beadell Resources, Gryphon Minerals, Intrepid Mines, Karoon Gas, Lynas, Medusa Mining, Mirabela Nickel, OceanaGold, Perseus and St Barbara.

Banking and financial services are also a potentially “high risk” area, according to Prior.

This is because banks need to interact with regulatory authorities and/or government partners, she says. “Commonwealth Bank and National Australia Bank appear to provide little detail on their management of this particular risk area,” says Prior.

She says companies that provide services to major international mining or oil companies may be audited as part of their clients’ due diligence processes, if, for example, the client company comes under the UK Bribery Act.

“This suggests that Forge Group, Mermaid Marine, Monadelphous and NRW Holdings may benefit from putting more rigour and transparency around their processes,” says Prior.

Larger companies, that Prior has assigned as being in the higher risk category because they have not yet published detailed anti corruption and bribery policies. These include, she says, Cochlear, Crown, Graincorp, Incitec Pivot, Origin Energy and Westfield Group.

Prior writes the media have written extensively recently on fresh allegations of bribery in BHP’s business dealings in Cambodia, China and Western Australia.

Leighton Holdings is under investigation by the Australian Federal Police and the Iraqi Oil Ministry over claims of bribes for information that allowed Leighton to win $US1.3 billion of oil contracts, she says.

News Corp said in July last year it would close its publication, News of the World, after allegations of phone hacking and corrupt payments to police. News Corp has been subject to investigations by UK and US authorities and spent nearly $US390 million on the investigations up to the quarter ended March 31, 2013.

After the imprisonment of four Rio Tinto employees in 2010 some commentators have also expressed queries over Rio’s 2011 payment of $US700 million to the Guinea government to recover rights to half of the Simandou iron ore project. At the time, Rio has highlighted the government of Guinea's commitment to implement and uphold the principles and criteria relating to the Extractive Industries Transparency Initiative.

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