10th Regional Meeting for Latin America and the Caribbean: Preventing corruption in the extractive industries

8 March 2023 –

The sheer size and scope of the extractive sector and the significant amount of revenues it generates in Latin America and the Caribbean, and globally, make the sector ripe for corruption. The extractive industries make up a large part of the economies of countries in Latin America and the Caribbean, representing approximately 2,76 % of the region’s GDP in 2020. In 2016, in Latin America and the Caribbean, oil and gas extraction represented about 24% of the world’s total oil and gas production, while mineral extraction represented about 58% of the world’s total extracted minerals.

This crucial and increasingly pressing issue was discussed at the UNCAC Coalition’s 10th regional meeting for Latin America and the Caribbean on 28 February 2023, with presentations from civil society organizations from Venezuela, Guyana and Colombia. Participants shared their experiences, innovations, and ideas to strengthen the integrity in this sector, as well as advocacy strategies at the national and regional levels moving forward.

Large companies involved in resource extraction have been at the forefront of two of Latin America and the Caribbean’s most notorious cases of transnational corruption: the Petrobras and Odebrecht cases. These cases did not only show the vulnerability of Latin American and Caribbean political systems to profits from certain extractive industries, but also showed the transnational nature of corruption in this sector. The consequences of this corruption can have a profound negative effect on the environment, on the health of local communities, on the livelihood of surrounding communities, and on the lives of activists who speak out against extractive operations and their harmful impacts.

Corruption in resource extraction through the lens of the UNCAC

While the UN Convention against Corruption (UNCAC) does not address corruption in the extractive industries directly, it aims to prevent and combat many of the corrupt acts that occur in the extractive sector including bribery, money laundering, and corruption in public procurement, among other issues. Corruption in the sector must be analyzed as a complex issue in its entirety. Within the framework of the UNCAC, COSP Resolution 8/12, which does not explicitly mention extractive industries, calls for governments to take measures to combat and prevent corruption as it relates to environmental crime. The UN’s Economic and Social Council (ECOSOC) passed Resolution 2019/23 titled “Combating transnational organized crime and its links to illicit trafficking in precious metals and illegal mining, including by enhancing the security of supply chains of precious metals”, which states the need for States Parties to the UNCAC to integrate the extractive industries into its discussions.

The UNCAC Coalition’s Working Group on Environmental Crime and Corruption has repeatedly called for strengthening the right to access to environmental information and establishing strong legal frameworks and enforcement measures to tackle corruption linked to environmental crime in numerous documents submitted to the UN and UNCAC States Parties.

Latin America and the Caribbean are aware of the problem but not committing to any solutions

As discussed in the 9th Regional Meeting for Latin America and the Caribbean about access to environmental information, 13 countries in the region have signed and ratified the Escazú Agreement which specifically addresses the sector as an obligated subject of many of the new standards. 11 countries from Latin America and the Caribbean are part of the Extractive Industries Transparency Initiative. Furthermore, the Inter-American Human Rights Commission has taken note of the harmful impact of corruption in the extractive sector.

However, it should be noted that despite many countries in the Americas having large extractive sectors, no significant actions have been taken by the Organization of American States, Mercosur, the Andean Community, or Caricom to address corruption in the extractive sector as a transnational issue.

Transparencia Venezuela’s decades-long fight to monitor and report corruption in the oil sector, the “fuel for corruption”

María Fernanda Sojo, Investigations Coordinator for Transparencia Venezuela, shared her organization’s experiences fighting against corruption in the oil sector in Venezuela, which spans back more than 25 years. María Fernanda recounted the erosion of transparency and accountability mechanisms of Petróleos de Venezuela S.A. (PDVSA), the Venezuelan state-owned company.

Six laws were fundamental in making PDVSA a source of illicit funds and embezzlement, allowing Venezuela’s Executive Branch to rule by decree and reduce the audit powers and capacity of the Legislative Branch and autonomous comptrollers. After a sector strike in 2003, more than 20.000 employees were laid off, and their posts were used as tokens for political support from cronies. In 2006, the Minister of Oil was simultaneously the President of PDVSA, essentially making the operator and regulator the same person.

Around this time, a parallel dark money fund was established as part of the PDVSA budget which undergoes no type of audit. In 2006, the company stopped reporting to the United States Securities and Exchange Commission, and since 2016, has stopped producing audit reports of any kind. María Fernanda noted that since 2014, PDVSA money has been at the source of hundreds of bribery and corruption scandals and that currently, more than 127 cases worldwide are actively associated with the Venezuelan extractive sector.

Beyond recounting a series of milestones in rendering the extractive sector in Venezuela more and more opaque, María Fernanda was eager to show how Transparencia Venezuela was present, vigilant, and reporting on corruption risks at every step of the way. She shared their most recent publication with the other participants hoping their experience would help other countries in the region.

“Uncovering” off-shore oil: civil society in Guyana take a crash course in corruption in the extractive industries

Frederick Collins, Executive Director of Transparency Institute Guyana Inc., spoke about the situation of oil extraction in Guyana. Despite Guyana having ongoing mining operations in the interior of the country for decades, the existence of offshore oil deposits is a relatively new development for most of Guyana’s citizens. As Frederick explained, in 2015, an oil extraction contract dating from 1999 was leaked to the press, whereas previously there was little to no knowledge of oil extraction in the country. In 2016, another contract was released with more details that essentially gave some companies a 0% corporate tax rate and the possibility for large write-offs for “expenses”, with little royalties paid to the Guyanese government.

Despite the scandal uncovering of the contract, the government and opposition parties have taken little initiative to renegotiate the contract or to implement accountability mechanisms. On the one hand, the government has failed to publish audits of expense write-offs. On the other hand, regulation surrounding the oil industry has been irritatingly lax: the Environmental Protection Agency has consistently taken the side of the oil companies when accusations of environmental degradation have surfaced, including recent accusations of production-derived gas-emission burning by Exxon. Frederick notes that sub-contractors have also come under fire, including the company Schlumberger which lost a legal battle to dump waste near residential areas but continued to do so regardless of the sentence.

When asked, Frederick said that Transparency Institute Guyana repeatedly makes recommendations to the government to improve integrity in the oil sector, but that little attention is paid to them. “In Guyana, everything [in the oil sector] is managed in a shroud of secrecy.”

Working with local communities to monitor extractive industries and prevent corruption in Colombia

Claire Launay Gama, Programme Director of Civil Society Initiatives, and Pilar Federica Acosta, Project Coordinator of the Extractive Industry Transparency Initiative at Transparencia por Colombia spoke about their organization’s program “Transparency and anti-corruption in the extractive sector”.

Pilar gave a brief overview of forthcoming findings regarding corruption risks in the EITI value-added chain in the exploitation of hydrocarbons. Their study reveals several problem areas, but in general, there is a low level of citizen participation in decision-making surrounding exploration and licensing, including a lack of access to public information and reporting channels; there is very limited institutional capacity to undertake transparent and participatory procurement; and that the procurement that is taking place is not transparent.

Claire spoke about another forthcoming study titled “Refined Corruption” analyzing cases of corruption that occurred between 2016 and 2020 linked to the extractive sector. Transparencia por Colombia found 46 concrete cases of corruption: 23 cases associated with the investment of royalties, 16 associated with the mining sector, and 7 associated with the hydrocarbon sector. They took these findings and assigned them to the EITI value-added chain, and analyzed the actors involved in each case and where the cases occurred. Their most important finding is that despite the fact that corruption cases involving the extractive sector only represent 4,45% of all corruption cases, they represent more than a third of the money lost due to corruption.

Both Pilar and Claire shared some of their recommendations from their findings, promising to share the results with the other UNCAC Coalition members as soon as they are published.

How do other anticorruption watchdogs in the region engage with the issue of corruption in the extractive sector?  

An open discussion about how anti-corruption NGOs engage with the issue of corruption in the extractive sector followed the presentations.

A representative from Participación Ciudadana shared that recently, the Dominican Republic has seen a wave of cases of corruption linked to licenses for mining exploration and resource extraction. The Ministry of Mining is largely perceived to be coopted by interests from Canadian, U.S., and Chinese mining companies after granting several high-profile “blank check” licenses. These cases received more attention following the assassination of the Minister of the Environment, a proponent of better regulation of mining licenses.

Representatives from FUNDE shared a similar occurrence from El Salvador. Years ago, El Salvador forbade mining activities by law, based on grassroots efforts by activists and citizens. Yet under the current administration, the law was tweaked to give access to Canadian companies to mining activities in alliance with some Russian companies with a presence in Guatemala. FUNDE is concerned that restarting mining operations without strengthening current accountability systems may lead to abuse and corruption.

María Fernanda Sojo complemented her presentation by talking about the work Transparencia Venezuela is beginning to undertake to monitor small-scale, artisanal mining in Venezuela. This prompted a question to Transparencia por Colombia about the links between artisanal mining and guerrilla groups in Colombia. The speakers from Transparencia por Colombia noted that while in the past small-scale, unregulated mining was a source of income for guerilla groups, it has largely ceased to be so. Now, organized crime groups are beginning to get into the artisanal mining market, a development they say requires urgent monitoring.

When asked about future areas of concern, three key minerals were the source of concern for the region: coltan, lithium, and gold. An individual member with extensive work in Central America, noted that the border between Colombia and Venezuela has the region’s largest reserves of coltan, a mineral essential for the production of modern electronics. He noted that while much attention is paid to gold and oil extraction in the country, less is paid to the extraction of this vital mineral which in the long run will be very lucrative for the country and a potential source of corruption.

Participants discussed lithium as a source of future concern that civil society should be paying attention to. Argentina, Chile, and Bolivia are known as the “lithium triangle”, an area that produces 60% of the world’s lithium, a mineral primarily used for the manufacture of batteries and electronics. A representative from Fundeps from Argentina raised concerns about the current mining regulations in Argentina, which hark back to the 1990s and are not comprehensive in terms of environmental reporting and compliance. Likewise, a representative from Fundación Multitudes from Chile spoke about their efforts to empower local communities to identify risks surrounding lithium mining, and their efforts to get the scope of the “sustainable mining” law in Chile to be expanded to include civil society organizations that work at the national level on environmental or governance matters. A representative from Fundación Construir from Bolivia noted that while lithium mining is a concern, they are focused heavily on a growing gold mining sector in Bolivia, since gold mining operations are slowly creeping into areas protected for environmental and cultural reasons, and that the first judicial cases are beginning to be brought forward of mismanagement and negligence by public officials.

Conclusions and the way forward

In a poll circulated before the meeting, UNCAC Coalition members were asked to rank to which extent they agree with the following three myths about the extractive sector in Latin America and the Caribbean:

  • That “resource curse” existed in the region, a claim that most respondents were unsure about;
  • That many existing extractive operations only exist because corruption “greased the wheels”, which most respondents disagreed with, though some noted that the most reckless of operations exist because of corruption.
  • That environmental and community consultations help to prevent corruption in extractive operations, which respondents overwhelmingly agreed with.

Clearly, civil society organizations in Latin America and the Caribbean see the value of civic space when it comes to curbing corruption in the extractive industries. The speakers and participants in this regional meeting all showed concern for this issue of corruption in the extractive industries, which continues to be a pressing matter for most of the region, even in countries where extractive industries do not make up a major part of their GDP. The UNCAC Coalition, both through the regional groups and its Environmental Crime and Corruption Working Group will continue discussing corruption in the extractive sector in light of COSP10 and beyond.

If you are a civil society activist from Latin America and the Caribbean and would like to become involved, please contact our Regional Coordinator Iñaki Albisu Ardigó at email hidden; JavaScript is required.