Freeport Gifts

4 Nov

Freeport-McMoRan is in a bit of water—I would say “hot water” but I’m not sure what the temperature will be—over its spending millions of dollars to provide wages and living expenses for the police protecting its mining interests in Papua, Indonesia.  United Steelworkers wrote a letter complaining about the conduct to the Department of Justice.  My initial, tweeted, reaction was “Oh, please.”  That evolved into “if they have a program, they’re fine. If not, not.”

The first reaction is probably the one that I’ll come back to, but let’s spend a little time on analysis.

What I meant by “if they have a program, they’re fine,” is that I wonder whether these payments were made while cognizant of the issues they could raise.  If Freeport has a compliance program that they follow, and financial controls that had them record these payments in an accurate way (I’m wondering what the SEC would consider accurate here), the question is whether the payments themselves violate the FCPA, and whether, if they do, it’s something the DOJ is going to want to prosecute.

The allegation in the United Steelworker’s that drew my attention was the connection to the shooting deaths, by police, of several striking steelworkers, and the injuring of several others.  The connection United Steelworkers is trying to make is that since Freeport paid the police’s living expenses, they were more willing to kill strikers than had the payments not been made.  I’m not buying it.  I often admit my ignorance, and will do so here: my experience with Indonesia is minimal.  I suspect, however, that police would be hostile to striking steelworkers—what I also suspect is a major source of income—no matter whether payments were made or no.  What’s more, I do know that paying expenses of police, either for protection or investigation, is commonplace in markets where police don’t earn a living wage.

This isn’t uncommon: in fact, there’s an opinion release on it, albeit to a much lesser dollar amount than $14 million.  In Opinion Release 08-03, TRACE asked the Department for its blessing on a plan to pay journalists in China (working for a government-owned press agency) for attendance at a press conference, including transportation costs, incidentals, and food.  The stipends, assured TRACE, were common and were given without expectation of future coverage.  I imagine that Freeport could make the same argument here.

If I were analyzing this, there would be some questions I’d ask.  If 80% of the $14 million in 2010 was for meals and living expenses, I’m wondering what the other 20% was for.  Because 20% of $14 million is enough money to pique the regulators’ interest. Still, if the vast majority of the money went for “in-kind support such as meals, health care, and transportation assistance” then I can imagine those numbers adding up.  Just a cursory look at Papua, Indonesia on Google Maps Satellite view tells me it’s not exactly urban.  I would imagine that if you want security, you have to pay a premium for what I’m sure is a hardship posting.  This kind of payment doesn’t offend.  Not me, anyway.

I’m fully aware that this isn’t the most popular argument to use with the Department, but this is just how business is done in some markets.  Indonesia is a risky one, sure.  You need security at your mines.  You can’t get it through local police unless you pay.  When I give training on facilitation payments, I often say that the size of the payment doesn’t matter.  A $5 payment to a customs official to get him to admit you into a country when he has authority to turn you away is a bribe.  A $20 million payment to get a post office worker to deliver your mail is a facilitation payment.  I think a serious argument could be made that these payments, despite the amount, are facilitation payments.  People are entitled to police protection.  These mines are out in the middle of nowhere sometimes.  Try to get the level of protection you need without paying for aspirin when they have a headache.

But you also can’t look at these payments in isolation.  I would suggest that a criminal prosecution for these payments is unlikely.  If the payments were somehow linkable to police activity unexplainable by other means, there might be something.  But the allegations of shooting striking workers is overly sensationalist, in my opinion, and probably divorced from the facts on the ground.  I’m open to counterargument on that, however.  But if the company takes its foreign bribery prevention seriously, and has documented the decision to make these payments after analyzing the issues they raise, and can point to an otherwise robust program, they’re good.

One final note, and I hope someone from United Steelworkers reads this.  I have two suggestions.  First, before you write a letter to someone, figure out who to write to.  Writing a letter to “FCPA Coordinator” is ridiculous.  Finding out who runs it (Chuck Duross) isn’t hard.  Plus, don’t tell Chuck that “the [FCPA] bans companies from paying foreign officials to do or omit to do an act in violation of his or her lawful duty.”  I think he knows that.

I also think, in a really, really final note, that the United Steelworkers’ motive might not be, shall we say, pure as the driven snow.  I’m just sayin’.

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