Manual on due diligence for extractives sector licensing launched

As part of efforts to reduce corruption in the extractive and natural resource sectors, the World Bank has launched a manual on integrity due diligence for the extractive sector licensing processes.

This is a high global development priority, since corruption in this sector can impede economic development and contributes to illicit financial flows (IFFs).

Nonetheless, mitigating corruption risks in these sectors can be complicated as effectiveness depends largely on quality and effectiveness of transparency in the regulatory licensing process.

Global experts have agreed that “many countries have experienced firsthand how easily a few benefits to a few decision-makers can undermine an entire industry and impede welfare improvements to a whole population.”

The Bank is hopeful that the publication (License to Drill, 2018) would contribute to the efforts of officials to identify and implement good practices to reduce these corruption risks.

According to the Bank, although corruption risks can occur in many points of the value chain of these sectors, many can be effectively eliminated by a licensing process that is transparent, where responsible officials are accountable and where the identity of beneficial owners and politically exposed persons linked to licensees are publicly disclosed, consistent with EITI Requirements.

The publication focuses on good practice options to conduct integrity checks on applicants for licenses.  These consist of:

  1. Beneficial ownership checks;
  2. Criminal background checks; and
  3. Conflict of interest checks – to ensure licenses are granted only to those likely to meet high integrity standards in developing a country’s valuable assets.

Further to this, compliance with the EITI Beneficial Ownership Disclosure Requirement requires the need to first identifying beneficial owners and politically exposed persons (PEPs), which is best done before licenses are granted.

Effective assessment of the fitness and propriety of license applicants and technical compliance with the EITI Requirements will not eliminate extractive sector corruption if other important safeguards to ensure integrity, accountability and transparency are ineffective.

“When officials cannot be held effectively accountable for licensing decisions, corruption is likely.  Therefore, the publication also provides guidance to remove loopholes from regulatory frameworks and include integrity, transparency and accountability safeguards.”