Alemayehu G Mariam
Cloaking corruption in international respectability and credibility
The regime in Ethiopia is making a desperate second run to bring international respectability to its corrupt mining sector by re-applying for admission as an Extractive Industries Transparency Initiative (EITI) candidate. According to Anthony Richter, Chairman of the Board of the Revenue Watch Institute and a board member of the Extractive Industries Transparency Initiative (EITI), Ethiopia’s 2010 application was rejected because the EITI
board concluded that Ethiopia’s ‘Proclamation on Charities and Society’ would prevent civil society groups from being sufficiently independent and meaningfully participate in the process. The board decided, in effect, not to admit Ethiopia ‘until the Proclamation on Charities and Society is no longer in place.’ This is the only such instance in the history of EITI where a country has failed to be admitted and the grounds for this action was clearly rights-based. (Italics added.)
EITI is an international organization consisting of a “coalition of governments, companies, civil society, investors and international organisations” which “through robust yet flexible methodology company payments and government revenues from oil, gas and mining are published, and discrepancies are reduced.” Simply stated, EITI aims to promote accountability and transparency by requiring corporations and governments in member countries to come clean on revenues generated in their extractive industries. EITI is widely recognized for its “standards that promotes revenue transparency at the local level.”
The regime in Ethiopia is seeking EITI membership not to promote genuine transparency and accountability in its mining sector. Its real purpose is to use EITI admission and certification as a badge of integrity and a stamp of approval of good governance and good business practices as it markets its corrupt mining sector to investors. The candidacy appplication is a cynical ploy to use the EITI imprimatur to trick and lull potential international investors and financial institutions into believing that the regime is demonstrably committed to greater transparency and is in fact practicing accountability. It is a contemptuously audacious scheme to hoodwink EITI and foist on unsuspecting investors a false sense of political stability and convince them that they can expect full security for their mining investments. The fact of the matter is that the regime has no respect for private property of its citizens or foreign investors and maintains an overall hostile business environment. In its 2014 report, COFACE, the multinational that provides credit insurance and credit management services worldwide concluded that Ethiopia has “a difficult business environment marked by the lack of public sector data transparency, corruption and the crowding out of the private sector.”
Ethiopia’s mining sector is “corruption central”
The mining sector in Ethiopia is a hotbed of corruption and hub for graft and fraud. The World Bank (WB) in its 2012 massive report “Diagnosing Corruption in Ethiopia” identified the mining sector as one of the most corrupt sectors of Ethiopia’s economy.
According the WB, there are “seven areas of corruption risk” in the Ethiopian mining sector” including the “three main risk areas” of “license issuing, compliance with license conditions, and mining revenues”. The other critical areas of corruption include fraudulent practices in “compensations and obligations to local inhabitants, contracts with contractors and suppliers to the mining companies, falsification by mining companies of product quality, and theft of mining products and equipment.”
In the area of “license issuing”, the WB report states that “officials may extort or be offered bribes by mining companies in return for issuing licenses, for issuing licenses more quickly, or for specifying less-onerous license conditions.” A related risk is that “officials may secretly have ownership stakes in companies to which licenses are granted; acquire land for which a license application has been made; demand a share in mining companies or in their profits; and manipulate license registration to give themselves or their associates prior registration.” In “license compliance”, “mining companies may deliberately breach mining conditions (for example, environmental, health, and safety regulations, as well as the extent or area of mining)” with impunity.
In the area of revenue, “mining companies may deliberately understate output and profit and overstate costs to reduce royalties and profit taxes.” The regime has no independent means of verifying the revenues of mining companies. According to the WB, “Collection of royalties and income tax apparently depends almost entirely on the mining companies’ self-certification of output and profit because of the lack of resources at the Ethiopian federal, regional, and city licensing authority levels. It would, therefore, be relatively easy for the mining companies to exaggerate their capital and operating costs and understate their output and profit.” When “license operation and mining revenue breaches are discovered, the mining company may also bribe inspectors to overlook the breaches.”
The catalogue of corrupt practices in the mining sector documented by the WB in its 2012 report cover the entire spectrum ranging from bribes, falsification of records, shakedowns and take downs of mining companies and stealing compensation designated for local inhabitants to criminal use of insider information and fraudulent shell corporations. The egregious examples of corruption documented by the WB are mind boggling and include the following:
A mining company could be required to pay a large premium in return for a mining license. Senior officials and the mining company could keep this premium secret, and the officials could receive payment in offshore bank accounts.
An official may require the mining company to make a large donation to a charity if it wants the license to be issued more quickly. Although the charity may appear to be genuine, it may in fact be a front for a political party or for the official’s personal or family gain.
A mining company may submit a health and safety plan for a mining license in accordance with good practice, but an official may tell the company that unless it pays a bribe, he or she will impose additional and unnecessarily onerous health and safety conditions.
A mining company may submit an environmental management plan for a mining license that will inadequately control the leaching of poisonous chemicals into the water supply. Proper controls would [be costly]. The mining company may pay the official responsible for approving the license a bribe to approve the deficient conditions.
Officials may demand a share in the profits of a mining company. A mining company may agree to give an official’s relative a free share in the profits of the mining project if it receives a license on beneficial terms.
Officials grant licenses to companies secretly owned by them. Officials secretly acquire land that is subject to a license application.
An official who is aware that mining may take place on an area of land may lease the land in advance of the mine licensing. Once the license is granted, the value of the land may materially increase. The official thereby profits from his or her inside knowledge by selling or licensing his or her rights to the land to the mining company.
Companies illegally on-sell licenses granted to them.
Officials manipulate license registration.
An official in the department that issues mining licenses may hear that a mining company wishes to apply for a license. The official may alert a businessperson with whom he or she has connections, and the businessperson may quickly apply for a license over the same area. The official grants the license to the businessperson. The mining company then has to purchase the license from the businessperson, and the businessperson shares the profit with the official.
A prospector may discover minerals, mark the area, and contact the relevant licensing authority to receive a discovery certificate. A corrupt official may not register the discovery in that person’s name but instead notify a business colleague and register the discovery in the colleague’s name. The corrupt official may then falsely inform the discoverer that someone else had previously discovered the minerals.
Officials collude with mining companies to grant subcontracts to relatives. The licensing authority could, as a condition of the license award or social development plan, require the mining company to undertake a large amount of additional infrastructure works at the mining company’s own cost. For example, the mining company may be obliged to build or refurbish a road, a school, or a hospital. A government official could then require the mining company to award one or more of these infrastructure projects to a contractor secretly owned by a member of the official’s family.
Officials or community leaders may steal compensation that should have gone to local inhabitants. Mining companies may bribe officials to set compensation below a proper rate.
Local inhabitants may falsely claim that they occupy land subject to a license application.
Contractors and suppliers may engage in fraudulent transactions in tendering, submitting claims, and concealing or approval of defective works.
Mining companies may commit fraud by making false declarations about the identity and quality of minerals or by bribing certifiers to approve false declarations. A major, ongoing investigation into corruption of this type is under way in Ethiopia.
Smoke and mirrors in the Ethiopian mining sector?
The regime in power has been playing a magical game of smoke and mirrors with mining revenues. According to a recent report citing official regime sources, “The Ethiopian government earned USD 419 million from the export of minerals supplied by artisanal miners operating in the country in the first 11 months of the current financial year. Export of gold made up the largest proportion of minerals, generating USD 409.1 million in foreign currency, followed by gemstones and tantalum earning USD 9.3 million and USD 1.6 million. This income came from the export of 7878.3 kg of gold, 20,126.3 kg of gemstones and 32.95 tons of tantalum…. MIDROC Gold is the only company that is engaged in large-scale gold mining.” Other reports indicate the “export of minerals has become Ethiopia’s second largest foreign currency earner, contributing over 23 percent of overall export earnings.”
The fact of the matter is that no one, except those who hold the key to the lockbox of the mining revenues, know the actual amount of revenue generated by the mining sector. The regime claims it has no independent way of verifying mining revenues and must rely on information reported by the companies. How convenient! The fact of the matter is that principal beneficiaries of the mining sector revenues are the wealthy oligarchs and the businesses fronting for the oligarchs and other enterprises owned by the “Tigray People’s Liberation Front”. No one knows the depth and breadth of corruption taking place in the sale of mineral licenses and siphoning of mining revenues. There is credible anecdotal eyewitness testimony alleging that hundreds of pounds of gold are regularly spirited out of the country without inspection by plane from airstrips close to the gold mines. It is this brazen mining scam that the regime audaciously seeks to enshrine and consecrate with EITI imprimatur!
Why EITI must reject the regime’s candidacy application?
In its 2011 Rules, EITI made it clear that civil society freedom and participation is a cornerstone of its candidacy and membership criteria. To be eligible, the regime in Ethiopia “must take effective actions to remove obstacles affecting civil society participation”. It must respect the “the fundamental rights of civil society and company representatives substantively engaged in EITI.” The regime “must ensure there are no obstacles to civil society and company participation in the process” and guarantee that “ there is an enabling framework for civil society organizations and companies, with regard to relevant laws, regulations, and administrative rules as well as actual practice in implementation of the EITI.”
Moreover, the regime “must refrain from actions which result in narrowing or restricting public debate in relation to the implementation of the EITI” and ensure that “ civil society and company representatives can speak freely on transparency and natural resource governance issues”. The regime must guarantee that civil society groups that participate as members of the multi-stakeholder group “must be operational, and, in policy terms, independent of government and/or companies” and “should be able to operate freely without restraint or coercion, including by liaising with their constituency groups.” EITI emphatically requires that “civil society groups, companies and their representatives must be free to express opinions about the EITI without restraint, coercion or reprisal” and that “civil society groups involved in the EITI must be free to engage in wider public debates on the EITI.”
Civil society institutions have been decimated by the regime in Ethiopia
The regime’s 2009 charities and societies law (Charities and Societies Proclamation No. 621/2009) has been weaponized to completely decimate civil society organizations in Ethiopia. In February 2008, I critically reviewed the draft of the proclamation in a long commentary titled, “Probing the Feared CSO Draft Law.” I listed 10 compelling reasons why it should discarded. I argued the proclamation is a preemptive legal strike aimed at neutralizing and abolishing civil society institutions so that they will not pose a threat to the regime by promoting democratic practices. The proclamation facilitated arbitrary and capricious regulation of civil society institutions by granting unbounded discretionary quasi-judicial power to the director to the regulatory agency of the NGOs without normal judicial review. The proclamation is extremely intrusive in the affairs of civil society, micromanages them and imposes unreasonable and extremely burdensome financial accountability requirements, which the regime itself does not practice. It is punitive and has a chilling effect on civil society membership and participation. Ultimately, I argued the proclamation is manifestly unconstitutional, mean-spirited and discriminatory. Human Rights Watch commenting on the draft warned that “the intended and actual result of this law would be to make it nearly impossible for any civil society organization to carry out work the government does not approve of.” As I have often said, preaching constitutional law, due process and accountability to the regime in power in Ethiopia is like preaching Scripture to a gathering of deaf-mute and blind Heathen or pouring water over a slab of granite. The draft proclamation became “law” in 2009.
In February 2010, U.S. Undersecretary of State Maria Otero raised serious concerns with the late Meles Zenawi over the Proclamation asserting that the law “threatened the role of civil society” in Ethiopia. Meles ignored her concerns. However, the proclamation soon laid waste to civil society institutions in Ethiopia. According to one report, “the number of CSOs in Ethiopia has been reduced from about 4600 to about 1400 in a period of three months in early 2010. Staff members have been reduced by 90% or more among many of those organizations that survive according to my informants.” Simply stated, the Proclamation wiped out 70 percent of the CSOs in Ethiopia in three months! In the same month, the regime froze the assets of Ethiopia’s Human Rights Council, Ethiopia’s oldest human rights organization, and the Ethiopian Women Lawyers Association, effectively incapacitating these two vital institutions; indeed for all intents and purposes outlawing them.
In October 2012, the regime announced closing down 10 non-governmental organizations (NGOs) under the Proclamation and threatened to revoke the licenses of dozens of other organizations for alleged misconduct. The regime also announced that 17 other organizations were under active investigation. The regime further alleged 400 organizations were operating in violation of the Proclamation and affirmed that appropriate action would taken against them. In November 2012, the Heinrich Böll Foundation, a German NGO which promotes democracy and human rights, packed up and left in protest against restrictions on its activities.
In February 2013, the regime banned three NGOs including One Euro, the Islamic Cultural and Research Centre, and the Gohe Child, Youth and Women Development Organisation accusing them of conducting “illegal religious activities”. In 2013, “out of 29 charities funded by US Agency for International Development, 27 can’t comply” with the Proclamation. In 2013, Human Rights Watch reported, “Ethiopia’s CSO law is one of the most draconian laws regulating nongovernmental activity in the world… Space for civil society, press freedom, and peaceful protest in Ethiopia has continued to shrink since 2010.”
The 2014 Bertelsmann Transformation Index reported, “The media and civil society organizations have been stymied by oppressive laws; trade unions and professional associations too have been forced either to toe the government line or, like the teachers’ union, be dissolved.” What is truly ironic is the fact that the majority of the current civil society stakeholders in EITI including Global Witness, Open Society Revenue Watch Institute, Transparency International among others would not be allowed to operate in Ethiopia today! Yet, the regime cynically and hypocritically seeks to join them and demonstrate to the world that it is committed to the free operation of civil society institutions.
Mockery of the EITI Protocol: The con game of the regime in Ethiopia must be stopped
The proffered candidacy application of the regime in Ethiopia makes a mockery of the EITI and its protocols. The regime knowing full well that it completely disregards EITI’s core value of respect for and protection of civil society organizations has nonetheless shamelessly applied for admission. The very act of submitting the candidacy application must be seen for what it is — an insult to the intelligence of EITI members and EITI as an institution, an affront to EITI values and a mockery of EITI members who have worked so hard for over a decade to bring about transparency and accountability in countries spinning in a vortex of corruption.
The bird-brained scheme of the regime to slide unnoticed into the EITI community by hoodwinking, duping and pulling the wool over the eyes of EITI’s Board reminds me of the old adage about the wolf in sheep’s clothing; better yet the proverbial pious Ethiopian wolf masquerading as a saint and praying among sheep. The regime wants to join the EITI in an attempt to mask its true nature to international investors– wolfish, predatory, rapacious, venal, corrupt, profiteering and devoid of any ethical sensibilities.
The whole idea in the EITI protocol is transparency and accountability. If the regime is unwilling to accept responsibility for its ongoing decimation of civil society institutions in Ethiopia, how can it reasonably expect to be a member of an organization whose sole purpose is transparency and accountability? A pious wolf praying among sheep? Which EITI country would not feel unsullied or willingly keep company with such an odious candidate?
Before the regime’s application for EITI candidacy is considered, it must first demonstrate its own EITI – Ethiopia Institutional Transparency and Integrity by repealing the current proclamation and by enacting a civil society law that is civil, civic-minded and civilized.
The con game of the regime in Ethiopia to flimflam the EITI and sneak into that organization to gain undeserved international respectability must be exposed and stopped!
Professor Alemayehu G. Mariam teaches political science at California State University, San Bernardino and is a practicing defense lawyer.
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