coll. - Corruption in the extractive value chain typology of risks, mitigation measures and incentives

The complex and specific corruption challenges related to the extraction and trade of natural resources and the management of its associated revenue flows are a source of growing concern across developing, emerging and developed countries. As a result, corruption in the extractive industries has been included in the Action Plans of the G20 Anti-Corruption Working Group. Recognising the need to step-up anti-corruption efforts, world leaders gathered at the Anti-Corruption Summit in May 2016 and explicitly identified the extractive industries as being among the sectors that are particularly vulnerable to corruption, undermining economic growth, threatening security and harming the poor.

For resource rich countries, corruption poses a major threat to development. The high rents generated by resource exploitation and the gate-keeping function performed by governments, combined with discretionary powers, limited competition among key economic players and an often blurred distinction between private and public interests, are among the factors that increase the exposure of the extractive sector to corruption. The adverse impacts on the public interest are huge. Corruption undermines trust in public institutions, disrupts sector effectiveness, reduces the level of revenue collected from resource production and distorts decisions on budgetary allocations.

The increasing global competition for access to natural resources coupled with the resource-seeking nature of foreign direct investment can also further exacerbate corruption risks and create perverse incentives for extractive companies. The proceeds from corruption often fuel transnational crime and illicit financial flows, and are facilitated by complex corporate structures, opaque financial transactions and off-shore centres.

Tackling the cross-border aspects of corruption in the extractive sector is vital. Focusing only on large multinationals, or only on host governments would fall short of achieving meaningful results. For example, the governing elite often rely upon resource rents to gain or maintain power, patronage and privilege. In these cases, supporting governmental reform and transparency and promoting the adoption of anti-corruption measures is important. However, relying exclusively on government action to effectively tackle corruption is illusory in situations where resource rents are the primary means for exercising and perpetuating political influence. Both the supply and the demand sides need to be addressed, at domestic and international levels, and between private and public actors.

Given these challenges associated with extractives governance, the OECD has developed, as part of its Initiative for Policy Dialogue on Natural Resource-based Development, Corruption in the Extractive Value Chain: Typology of Risks, Mitigation Measures and Incentives. This study provides, for the first time, a systematic mapping of corruption risks at each stage of the value chain. Designed through a multi-stakeholder process, the Typology makes an important contribution towards building a common knowledge base on how corruption works and better informing evidence-based policy design and action.