capstone report 2016 [final]

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THE PERUVIAN MINING SECTOR: EXPLORING ISSUES RELATED TO SOCIAL LICENSE, CORRUPTION AND THE

TRANS-PACIFIC PARTNERSHIP TREATYSIPA Capstone Report 2016

Prof. Jenik Radon Jonathan Avila

Yohan John Balan Ana De La Cruz

Muhammad Affan Javed Suzhe Jia

Mubarik Khan Jenny Lee

Joseph Maberry Abhinaya Natarajan

Vatsala Sahay Naoko Takahashi

The Peruvian Mining Sector Spring 2016

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OTHER REPORTS Mining in Peru: Benefiting from Natural Resources and Preventing the Resource Curse is published by the School of International and Public Affairs (SIPA) at Columbia University as part of a series on natural resource management and development in Africa, Asia, and Latin America. Other publications include:

Oil: Uganda’s Opportunity for Prosperity (2012)

Politics and Economics of Rare Earths (2012)

China, Natural Resources and the World: What Needs to be Disclosed (2013)

Mozambique: Mobilizing Extractive Resources for Development (2013)

Colombia: Extractives for Prosperity (2014)

Tanzania: Harnessing Resource Wealth for Sustainable Development (2014)

Mining in Peru (2015)


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ACKNOWLEDGEMENTS AND THANKSThe Peru Capstone team acknowledges the individuals and organizations that provided invaluable assistance in the preparation of this Report.

In Peru, the team thanks Mario Huapaya Nava, Fatima Retamoso, and Mayu Velasquez at the Ministry of Culture, Government of Peru, for their support and guidance. The team would also like to thank the professors and students affiliated with the Communications and Corporate Image program at the Peruvian University of Applied Sciences (Universidad Peruana de Ciencias Aplicadas)—Claudia Guillen Arruda, Paloma Valqui Andrade, Manuel Rumiche, Alexandra Vassallo Bedoya, Pia Fernandez Roig, and Sergio Hoyos—for their time and great contributions to a successful and insightful research experience.

The team also expresses deep gratitude to all the community leaders, company officials, private sector experts, academics, scholars, NGO staff, international organization representatives, government officials, and civil servants in Lima, Cajamarca, and Arequipa who made the time to share their invaluable experiences and insights with the group. The team would also like to mention the scholars, experts, and journalists in the United States that provided the team with their insights and comments. The team hopes that your views are reflected in this Report to further the objective of an inclusive development strategy for the extractive industry in Peru.

In New York, the team thanks Professor Jenik Radon, Esq, the Capstone advisor, for his mentorship and guidance. He has advised governments across the world on the sustainable development of resources, including Georgia, Afghanistan, Tanzania, Cambodia, and Colombia, Professor Jenik’s leadership and wisdom has contributed to the depth of analysis, pragmatism of recommendations and otherwise informed every aspect of this Report. The team also thanks Stefan Brown, Jill Marden Casal, Suzanne Hollman, Sylvia Polo, Josephine Vu, and all the people at SIPA and Columbia Law School who made field travel to Peru possible, Affan Javed and Naoko Takahashi for the photographs and Affan Javed for design. The contents of the Report are formatted by Mubarik Khan and Yohan John Balan. The members of the Peru Capstone team are:

Jonathan Avila, MPA ‘16 Yohan John Balan, LLM ‘16

Jenny Lee, MIA ‘16 Joseph (J.T.) Maberry, MIA ‘16

Ana De La Cruz, MIA ‘16 Abhinaya Natarajan, MPA ‘16 Muhammad Affan Javed, MPA ‘16 Vatsala Sahay, LLM ‘16 Suzhe Jia, LLM ‘16 Naoko Takahashi, MIA ‘16 Mubarik Khan, LLM ‘16 The recommendations and content of this Report are the sole responsibility of the 12 authors and do not represent the views of Columbia University or its affiliates, nor the Ministry of Culture, Government of Peru or other stakeholders.


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EXECUTIVE SUMMARY INTRODUCTION A report published by Ernst and Young in 2014 (“EY”) rated ‘social license to operate’ as the third most important risk to the mining industry.1 The EY report details salient factors, such as social and economic impacts; normative shifts; and direct and indirect costs, relating to the mining industry. An analysis of dynamics of communities and dialogue with a broad range of stakeholders is necessary to address impacts on local societies and broader economies. Due to globalization and interconnectedness, communities are cognizant of their rights with regards to mining activities on their territories. Normative shifts resulted in new frameworks, such as UN and ILO conventions, and have altered the relationship between States and the indigenous communities. As stakeholders better understand their rights, the reactions to negative environmental or health impacts have escalated from complaints to civil unrest and protests. This has led to the characterization of the ‘social license to operate’ as a risk. Mining companies directly face increased costs from ‘the inability to pursue future projects and/or opportunities for expansion or for sale.’ Further research shows long-term costs related to project delays, tensions with stakeholders, and inadequate grievance mechanisms. I. SOCIAL LICENSE TO OPERATE Central to any analysis on the impact of the mining industry and its impact on local societies is an understanding of what a Social License to operate is and how it affects the mining sector in Peru. Research indicates that mining companies acknowledge that successful mining projects require the consent of indigenous communities, and communities expect mining companies to secure a Social License to mine their traditional territories. Social License refers to acceptance by local communities that host mining operations, and other stakeholders, such as provincial and regional governments, of the mining projects. Effective social licenses encompass the following three components: 1. Inclusive and consultative process with relevant and affected stakeholders; 2. Good governance mechanisms to facilitate and monitor the engagement process; 3. Grievance mechanisms through which local communities can voice concerns, which are then

adequately addressed. – Features – The concept of social acceptance depends on the beliefs, perceptions, and opinions of the stakeholders with regards to the mining company and its activities. The features of social license include legitimacy, credibility, and trust.

- Legitimacy: This is based on formal and informal norms of the community, and requires continual community engagement and consultation to promote understanding and transparent information sharing between the mining companies and local communities.

- Credibility: There are two parts necessary to sustain social acceptance throughout the lifecycle of the project, and allow future projects to take place:

a) Consistent provision of transparent and comprehensible information; b) Compliance with mutually established and agreed upon commitments

1 EY Report - Business Risks Facing Mining and Metals 2014-2015, pp.16-18 (2014) available at http://www.ey.com/Publication/vwLUAssets/EY-Business-risks-facing-mining-and-metals-2014%E2%80%932015/$FILE/EY-Business-risks-facing-mining-and-metals-2014%E2%80%932015.pdf.


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- Trust: Legitimacy and credibility are prerequisites for creating trust between the mining company, local community, and other relevant stakeholders. Together the three components facilitate a cooperative atmosphere that generates a mutually beneficial environment.

– Characteristics – The following listed characteristics of social licenses affect how companies pursue community acceptance. Generally, Social Licenses are:

- Intangible: As it is rooted in perception and opinion, the nature of social licenses are intangible. It is necessary to have clear and transparent dialogue between the company and community to maintain an effective relationship.

- Informal: Social licenses are dynamic and change over time as perceptions change and scope of the project change. The company should periodically take stock of social approval to ensure that social acceptance is maintained in presence of internal and external influences.

- Dynamic: The perceptions and opinions that local communities hold fluctuate over time and throughout the lifecycle of a mining project. Companies and governments must take steps beyond initial engagement, and extend a continued presence in the local community to sustain viable company-community relations.

- Spatially diverse: Social license obtained in one community is not necessarily transferrable to another community with similar mining activities. In addition, distribution of benefits to communities closest to mining sites can result in inter-community conflicts, despite the apparent fairness of this system. Companies and governments must know the impacts on the affected communities regardless of their distance from mining sites, and address their needs appropriately.

The term ‘community’ is a misnomer and suggests ‘a singleness of purpose that does not always exist.’ Rather, there are numerous communities with varied interests. Referring to them as “networks” more accurately describes communities that “might not be part of a geographic community” but are nevertheless impacted by mining activities. – Free, Prior and Informed Consent (FPIC) – The United Nations General Assembly resolution 61/295 adopted in 2007, titled “United Nations Declaration on the Rights of Indigenous Peoples” in Article 102 sets out the principle of Free, Prior and Informed Consent (FPIC) in the following terms:

- Free refers to the voluntary nature of the process, wherein the communities are free and empowered to direct the entire process.

- Prior refers to the state gaining consent from the indigenous communities well in advance of the project. In order for communities to make a voluntary decision, they must be provided with information in advance as well.

- Informed refers to the extent to which the community is knowledgeable regarding a proposed project. This requires accurate and transparent information that is crucial to their decision-making process, such as financial, political, social and environmental impacts.

2 UN General Assembly - United Nations Declaration on the Rights of Indigenous Peoples, UN Doc 61/295 (2007) available at http://www.un.org/esa/socdev/unpfii/documents/DRIPS_en.pdf.


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- Consent refers to the collective decision made by indigenous communities based on the information the State provides. This allows communities “the right to say no” to any proposed activity/project.

Furthermore, the FPIC process includes an annual review/renewal component that is integral towards ensuring credibility throughout the lifecycle of the project. – The Context in Peru – Social conflict has increased in the last decade with regard to mining activities in the Andean region. There are three explanations: 1. Issue of ownership of the resource-rich land: The State owns the minerals underground,

while the communities own land titles. As such, the State provides mining concessions, which the companies interpret as rights to the minerals. There is no communication or consultation with the communities, which leads to social conflict.

2. Inconsistent expectations and priorities: The various expectations and interests among the participating entities results in incongruous activities among the company, government, and local communities. The lack of consensus between the primary actors results in clashes.

3. Failure of mining companies to comply with terms: In cases where the company acquired the social license to operate, the lack of compliance changes the perception of local communities, diminishing trust in and credibility of the company.

FPIC, or Consulta Previa was passed in Peru as the Law of the Right to Prior Consultation for Indigenous and Native People. It is a formal process involving seven stages, including the State’s responsibility to identify indigenous or native peoples; State responsibility to disclose information, such as motives and impacts of proposed project to indigenous or native peoples; and State responsibility for internal evaluations of institutions impacted by proposed measures. – Salient Challenges – In-depth research indicates the following challenges in obtaining and maintaining the social license to operate:

- Absence of the State: There is limited to no presence of government in the mineral-rich regions. The companies are expected to take on the role of the State in providing basic facilities to gain community consent for the project. Consequently, managing expectations of the communities and mining companies is a major challenge.

- Burden on community liaison workers: The low number of liaisons allotted per community, resulting in one worker representing more than a dozen different communities. They must negotiate with the company and government on behalf of the communities but lack leverage.

- Consensus and intergovernmental coordination: The decentralized nature of decision-making and the lack of capacity in the local, regional and national governments result in delayed communication and/or miscommunication that can undermine consensus on benefit distribution, impacting social acceptance.

– Recommendations – 1. Engagement with indigenous or native peoples should be carried out well in advance and not

left for after project finalization so as to timely address any concerns of the indigenous people.

2. Identifying indigenous communities should include language and permanence of indigenous peoples within the traditional territory.


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3. To address the lack of power parities among the local, state, and corporate actors, the government and companies should appoint independent counsel for the indigenous or native peoples.

4. To address potential sources of conflict related to social and environmental impact, companies and governments should utilize NGOs, anthropologists, community liaisons, and other field experts to accurately map stakeholders and their needs.

5. Development of a triangular relationship in which the central and regional governments should work to ensure their roles are constructive throughout the lifecycle of the project, the company should coordinate with the central government to ensure continuity of provision of services when regional presence is lacking, and the community should be an equal participant in decision-making processes regarding services.

6. Development of a hub network for distribution of benefits based on (a) stakeholder maps not only of the immediate mining site but also zones that are impacted indirectly; (b) including community input on mapping zones.

7. Execution of a legally valid and binding consent agreement with the company, acknowledging indigenous community rights in relation to mining activities in traditional territories. This effectively recognizes the community as a partner in the endeavor, engaged in decision-making processes related to benefit distribution.

8. Document community consent and develop an institutionalized process, to increase transparency and accountability measures.

9. Granting licenses for mining ecosystems as opposed to sole mining operations. Governments should have a long-term vision for developing mining regions into self-sustaining economic clusters.

II. ANTI-CORRUPTION EFFORTS AND THE MINING SECTOR The trial and conviction of former President Alberto Fujimori indicates that the political establishment and the general public have become highly sensitized to the issue of corruption. The international community has recognized Peru as a compliant country by the Extractive Industries Transparency Initiative (EITI)4 Mechanism for the Implementation of the Inter-American Convention against Corruption (MESICIC) of the Organization of American States (OAS).5 This report analyzes efforts that have been made and recommends further actions to address corruption in the mining sector in Peru. – International Obligations – Peru was the first South American country to ratify the UN Convention against Corruption (UNCAC). It also signed the US-Peru Trade Promotion Agreement (PTPA) and is a member of the OECD Convention on Combating Bribery of Foreign Public Officials. – National Legislative Framework – Peruvian Criminal Code criminalizes the following acts as corruption if performed by public officials:

- Bribery (cohecho): This covers both “active” and “passive” forms of bribery.

4 EITI compliance requires that countries disclose information on benefits and payments made by companies operating in the Extractive Industries and these are reconciled against the revenues actually received by the State. For an understanding of on the more recent standards to be adhered to by EITI Compliant Countries, please refer to The EITI Standard 2016 (2016) available at https://eiti.org/files/english_eiti_standard_0.pdf 5 OAS recognizes Peru’s progress in fight against Corruption, published March 21, 2016 available at http://www.andina.com.pe/ingles/noticia-oas-recognizes-peru’s-progress-in-fight-against-corruption-604318.aspx


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- Influence peddling (tráfico de influencias): This is the act of receiving or giving a gift or promise of any advantage to influence a public official in the performance of duty.

- Illicit Enrichment (enriquecimiento ilícito): This refers to public officials illegally enriched by virtue of his or her office.

- Embezzlement (malversacíon): It is a punishable offense for a public official to appropriate or use in any form assets whose custody was committed to the official by reason of the office.

– Enforcement – Existing Peruvian legislation is adequate, but enforcement is insufficient. The following are salient issues in enforcement:

- Conflict of interest: Inadequate screening for conflict of interest and nepotism result in the ‘revolving door’ phenomena, or ‘la puerta giratoria.’

- Lobbying: Domestic or foreign individuals and companies, engaging in the activity of ‘interest management’6 must be registered with the government. Lobbying activities require monitoring.

- Right to information: Based on the Law of Transparency and Access to Public Information of 2003, any government information is deemed public unless specifically excluded by the law.

- Whistleblower protection: Since 2010, Peruvian law protects individuals who report arbitrary and illegal acts by public officials. Individuals that may be held liable must fall within categories of the administration, private employee, journalists, and private citizens.

– Subnational Government – Half of corporate taxes earned by the government were distributed to the regional level, referred to as the ‘canon minero.’ In addition, revenue from royalties is distributed to regional governments where minerals are extracted. Mining regions lack institutional capacity to handle these sums. Decentralization has led to political fragmentation, and the lack of communication between central and regional governments and the lack of technical and institutional capacity have created circumstances that allow for corruption. For example, nine out of the twenty-five regional presidents in Peru have been accused of Corruption in Peruvian Courts, with the most common charge being misappropriation of public funds.7 – Recommendations – 1. Collaboration between the government and company for the Public Works Through Taxes

(Obras Por Impuestos) program. 2. Strengthen fiscal oversight and control systems in the regional branches of the Comptroller

General

6 The euphemism for lobbying, which includes oral or written communications to public officials regarding a public decision. See Luiz Alberto dos Santos and Paula Mauricio Teixeira da Costa, The Contribution of Lobby Regulation Initiatives in addressing Political Corruption in Latin America, Journal of Public Affairs, 438 (2012) available at http://www.politicalcauseadvocacy.com/wp-content/uploads/2012/12/Lobby-Regulation-in-Latin-America.pdf 7 Jane Korinek, Managing the Minerals Sector: Implications for Trade from Peru and Colombia, OECD Trade Policy Papers, No. 186, OECD Publishing, Paris, 32 (2015) available at http://www.oecd-ilibrary.org/trade/managing-the-minerals-sector_5jrp6wrc2r7l-en.


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III. LEGAL FRAMEWORK OF MINING LICENSES, LOOPHOLES, AND RISKS The licensing process for mining operations requires good governance and institutional control, as it presents the greatest risk for corruption to occur.

- Mining concession: Applicants must follow the administrative procedures set out in the Regulations for Mining Procedures as implemented by INGEMMET (the Geological Mining and Metallurgical Institute). The application is a seven-step process.

- Loopholes: Major gaps in the legal framework exist in the administrative process, as concessions are primarily a function of government official discretion.

- Risks: Companies must deal with multiple agencies and applications, which is often an arduous process. Subsequently, in order to shorten the process and initiate mining activities, opportunities for bribery and lobbying increase.

– Environmental Protection – Additional requirements include water and environmental certifications based on the General Environmental Law.8 Since mining activities can have a serious impact on the quality and quantity of water, soil, species, and air, Environmental Impact Assessments (EIA) should necessarily be done prior to commencement of operations. There are three categories of the EIA process: 1. Environmental Impact Declaration for activities, projects or works with low negative

environment impacts; 2. Semi-detailed EIA for projects, activities or works with moderate environmental impacts; 3. Detailed EIA for works with significant negative environmental impacts.

- Risks in licensing: The EIA presents opportunities for corruption due to time constraints, and lack of regulatory authority for EIAs. The lack of inter-governmental communication coupled with the incentive to collect revenues from the mining company results in mismanagement and oversight during the licensing and approval processes.

- Risks related to communities: The lack of know-how in community management, especially with regard to drafting of agreements, results in the isolation of the community.

IV. THE TRANS-PACIFIC PARTNERSHIP TREATY: BOON OR BANE FOR PERU’S INDIGENOUS?– Signatory to Investment Treaties – The Peruvian government seeks to cultivate economic and political relationships with other countries, to hone the image of an investor-friendly Peru.9 As such, the government reassures international investors in various ways, such as:

- Article 63 of the 1993 Constitution stipulates that foreign investors have the same rights as national investors;

- Companies can enjoy tax and administrative stability conditions for a 10-year term; - The Constitution states that all expropriations must be compensated at fair market value.

8Peru Law 2861, available at http://www.fonamperu.org/general/documentos/leyambiente.pdf. 9Report by E&Y and Ministry of Foreign Affairs, Peru - Peru’s Mining & Metals Investment Guide 2015-2016, p. 18 (2015) available at http://www.ey.com/Publication/vwLUAssets/Gu%C3%ADa_Minera_2015-2016/$FILE/EY-Peru-mining-and-metals-investment-guide-2015-2016.pdf.


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– Negotiation Mechanics – Article 29.8 of the TPP states that the government would be obligated to pay the full market value of the property seized from indigenous communities. Arbitration between local communities and the government are a potential risk, which can be mitigated by early consultations and negotiations. The Agreement elevates foreign investor rights to the same level of national investors through non-discriminatory and expropriation clauses, but this is not extended to indigenous communities. – Investor-State Dispute Settlement System (ISDS) – In the event of an investment dispute the investor can sue the host country. The host country (i.e. Peru) is obligated to treat foreign investors no different from national investors; foreign investors cannot be treated differently from one another; and Peru cannot expropriate or nationalize a covered investment without exceptional reason. – Recommendations – 1. Require consultations with indigenous community representatives, NGOs, civil society

organizations, and other relevant stakeholder representatives, during the drafting stages of investment treaties.

2. Make the ‘protection of the indigenous and preservation of cultural heritage’ a ‘public purpose’ exception to expropriation.

3. Provide for appeals such that the host government has means beyond annulment on limited grounds.

4. Mandate corporate social responsibility standards, guidelines, and principles. 5. Strengthen the Peruvian central government to effectively manage the risk of potential

disputes. 6. Determine how Consulta Previa can generate a conflict with bilateral and international

investment treaties and create better practices for interaction between communities and the State.


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METHODOLOGYThe contents of this Report were developed through extensive literature review and desktop research, interviews in Peru, and collective group discussion, all under the guidance of Professor Jenik Radon, Esq. From late December 2015 to May 2015, the six graduate students from the School of International and Public Affairs (SIPA) at Columbia University, New York, studied large scale mineral and metal mining in Peru using economic, social and environmental frameworks, while the four LL.M. students from Columbia Law School (CLS) at Columbia University, New York, examined the governance and legal framework of mining and foreign investments in Peru. The Capstone Team benefited greatly from the help of students and professors affiliated with the Communications and Corporate Image program at the Peruvian University of Applied Sciences (Universidad Peruana de Ciencias Aplicadas).

The Capstone project client is the Ministry of Culture, Government of Peru (Ministry of Culture or Client), which oversees the implementation of the Consulta Previa, in all activities that impact indigenous populations, including mining activities. Professor Radon liaised with officials at the Ministry of Culture to refine the scope of the Report.

In March 2015, the Capstone team traveled to Peru for 10 days, where the students conducted interviews with stakeholders in Lima and fieldwork in Arequipa and Cajamarca, all Peruvian cities with a strong mining presence. These sites were chosen based on research conducted by the students, and agreed to by the Client. Fieldwork consisted of interviews, interactions with and travel to directly impacted communities.

Data collected firsthand during the trip to Peru were analyzed within the existing canon of research, and new insights were developed by the authors to create a report that would be useful to the Ministry of Culture in developing a strategic plan for its mining sector and recommending legal and policy amendments. The strengths of the research methodology include the diversity of perspectives that inform this Report, the refined focus of the Report, and the engagement of primary and secondary sources. The authors hail from professional and academic training in human rights, development, security, investment and trade, civil rights law, and many other fields, which confers rich nuance to this Report.

While the research benefited from meetings with multinational companies engaged in mining activities, findings and research would have been further strengthened if the team had been able to work in mining sites with more organized indigenous community presence. The Capstone team intentionally chose not to use surveys or polls or similar instruments, in the interest of full commitment to rigorous qualitative data collection. In future research, outcomes from this kind of analysis will be reflective of the perceptions surrounding the various issues in the mining sector in Peru. The Capstone team also faced some logistical challenges due to the brevity of time spent in Peru, and the varying degrees of Spanish language ability of its members. Many primary sources are only available in Spanish, and the team worked internally to translate these documents. The recommendations relating to provisions in legal instruments, statutes etc. contained in this Report have been drafted in English. The Government of Peru (or the relevant ministry) may adapt such recommendations to Spanish language, as required.

Artisanal, informal, and small-scale mining comprise a large part of mining activity in Peru, but are fraught with political complexity and lack of documentation. Peru also has oil and gas mining


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operations, and state owned enterprises and government actors remain highly involved in these activities. This Report focuses its analysis on large-scale mineral and ore mining exclusively, and the outcomes contained herein are for application in large investments and multinational mining concession contexts only.


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LIST OF ABBREVIATIONS AAA : River Basin Authorities AG : Attorney General ALA : Local Water Authorities ANA : National Water Authority BIT : Bilateral Investment Treaty CETA : EU-Canada Comprehensive Economic and Trade Agreement CG : Comptroller General CIRA : Certificate of Non-existence of Archeological Ruin DGAAM : Directorate General of Mining Environmental Affairs DGAAM : General Directorate of Mining Environmental Affairs E&Y : Ernst and Young EIA : Environmental Impact Assessments EITI : Extractive Industry Transparency Initiative EU : European Union FDI : Foreign Direct Investment FPIC : Free Prior and Informed Consent FTA : Free Trade Agreements GDP : Gross Domestic Product GORE : Arequipa Regional Government HKS : Harvard Kennedy School IACAC : Inter-American Convention against Corruption ICC : International Chamber of Commerce ICS : Investment Court System ICSID : International Centre for Settlement of Investment Disputes IGCP : Inter-organizational Committee on Guidelines and Principles for Social Impact IIA : International Investment Agreements ILO : International Labor Organization INGEMMET : Geological Mining and Metallurgical Institute ISDS : Investor-State Dispute Settlement System MESICIC : Mechanism for the Implementation of the Inter-American Convention against

Corruption MINEM : Ministry of Energy and Mines NGO : Nongovernmental Organizations NPV : Net Present Value OAS : Organization of American States OECD : Organization for Economic Co-Operation and Development OEFA : Environmental Evaluation and Oversight Agency ONDS : National Office of Dialogue and Sustainability PTPA : US-Peru Trade Promotion Agreement SCC : Stockholm Chamber of Commerce SEIA Law : Law on the National System of Environmental Impact Assessments SENACE : National Environmental Certification Service SIA : Social Impact Assessment


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SICRECI : Sistema de Coordinacion y Respuesta del Estado en Controversias Internacionales

TeleSUR : Latin American Television Network TPP : Trans-Pacific Partnership Treaty TTIP : Transatlantic Trade and Investment Partnership UN : United Nations UNCAC : UN Convention against Corruption UNCITRAL : United Nations Commission on International Trade Law UNCTAD : United Nations Conference on Trade and Development


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TABLE OF CONTENTS

OTHER REPORTS ......................................................................................................................... 2 ACKNOWLEDGEMENTS ............................................................................................................ 3

EXECUTIVE SUMMARY ............................................................................................................ 4 INTRODUCTION ...................................................................................................................... 4 I. SOCIAL LICENSE TO OPERATE ........................................................................................ 4 II. ANTI-CORRUPTION EFFORTS AND THE MINING SECTOR ....................................... 7 III. LEGAL FRAMEWORK OF MINING LICENSES, LOOPHOLES, AND RISKS ............ 9 IV. THE TRANS-PACIFIC PARTNERSHIP TREATY: BOON OR BANE FOR PERU’S INDIGENOUS? .......................................................................................................................... 9

METHODOLOGY ....................................................................................................................... 11

LIST OF ABBREVIATIONS ....................................................................................................... 13 TABLE OF CONTENTS .............................................................................................................. 15

INTRODUCTION ........................................................................................................................ 17 THE ECONOMICS OF THE MINING SECTOR: A BRIEF PROFILE ................................ 18

SOCIAL LICENSE TO OPERATE ............................................................................................. 21 I. DEFINING ‘SOCIAL LICENSE TO OPERATE’ .............................................................. 21 II. COMPONENTS OF SOCIAL LICENSE ............................................................................ 22 III.CHARACTERISTICS OF A SOCIAL LICENSE .............................................................. 23 IV.FREE, PRIOR AND INFORMED CONSENT ................................................................... 26 V. WHY IS IT IMPORTANT? (THE CASE FOR SOCIAL LICENSING) ............................ 31 VI. SOCIAL CONFLICT IN PERU ......................................................................................... 34 VII. CHALLENGES IN OBTAINING SOCIAL LICENSE IN PERU ................................... 46

ANTI-CORRUPTION EFFORTS IN PERU AND THE MINING SECTOR ............................. 57 I. ANTI-CORRUPTION LAW AND EFFORTS ..................................................................... 57 II. LEGAL FRAMEWORK FOR ANTI-CORRUPTION LAWS OF PERU .......................... 60 III. THERE IS THE LAW - WHERE IS THE ENFORCEMENT? ......................................... 63 IV. CONFLICTS OF INTEREST: ........................................................................................... 64 V. ENFORCEMENT AGENCIES IN PERU ........................................................................... 69

CURRENT LEGAL FRAMEWORK AND POLICIES IN RELATION TO MINING .............. 74 CRITIQUE: CORRUPTION RISK IN THE MINING SECTOR ................................................ 85 FACTORS THAT FACILITATE CORRUPTION ...................................................................... 90 SOCIAL IMPACTS OF CORRUPTION ..................................................................................... 91

THE TRANS-PACIFIC PARTNERSHIP TREATY: BOON OR BANE FOR PERU’S INDIGENOUS? ............................................................................................................................ 97

GENERAL INTRODUCTION ................................................................................................. 97 ARBITRATION DISPUTES AND FOREIGN INVESTMENT ........................................... 100 PERU AND THE SICRECI ................................................................................................... 103 THE PITFALLS OF INTERNATIONAL INVESTMENT AGREEMENTS (IIA) .............. 104 A CLOSER LOOK AT THE ISDS PROVISIONS IN THE TPP .......................................... 106


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CONCLUSION ........................................................................................................................... 119 ANNEXES .................................................................................................................................. 121

EXHIBIT 1 .............................................................................................................................. 121 EXHIBIT 2 .............................................................................................................................. 150 SOCIAL IMPACT ASSESSMENT ....................................................................................... 150 WHAT IS SOCIAL IMPACT ASSESSMENT? .................................................................... 150 SOCIAL IMPACT ASSESSEMENT IN THE CONTEXT OF PERU .................................. 153

TEAM BIOGRAPHY ................................................................................................................. 155


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INTRODUCTIONPeru is a resource rich nation with abundant supplies of copper, gold, silver, lead, zinc, natural gas, and petroleum deposits. For this reason the Peruvian economy continues to be dependent on the mining industry driven by the investment from overseas.10 As one of the largest mineral resources producers in the world, sustainable management of natural resources is imperative for Peru’s economic and social development.11 The country continues to exhibit improvement in the World Bank Doing Business indicators, and attract investors due to its strong financial services sector, the transparent regulatory environment, and the investment-friendly tax regimes.12 There is concern, however, that there is weak enforcement of environmental protection laws, and that local authorities may not be capable of containing social conflict that arises from discontent over the direct and indirect impact of mining industry.13 Peru has been unable to improve its low ‘political stability’ and ‘absence of violence and terrorism’ score in the World Bank’s Worldwide Governance Indicators over the past decade.14 In a country as ethnically diverse as Peru, national security could be a concern. This is especially because of the history of conflict in the country among peoples including indigenous populations, the unresolved social discontent, the systemic inequality, and the large illicit revenue coming from the informal mining industry. The World Bank’s Worldwide Governance Indicators give Peru low scores in ‘government effectiveness.’15 The government’s lack of capacity to monitor all regulations imposed on private sectors has discouraged the public trust toward the government and makes the mining companies question the benefit for them to follow regulations that do not have a sufficient monitoring scheme. Low transparency and efficiency in the license approval process and weak monitoring system fertilize the corruption risk and thus discourage foreign investment. While much effort should be expended on improving enforcement and monitoring of existing regulations, such regulations itself might be nullified as a result of globalization. The signing of the Trans-Pacific Partnership Treaty (TPP) might impose more obligations on the Peruvian government to protect foreign investors and may limit the state’s sovereign right to protect the environment and the rights of the indigenous persons. By drawing on primary government sources, private and public research, and interviews with relevant actors, this Report addresses social implications of mining industry in Peru. While the

10 EY Report - Business Risks Facing Mining and Metals 2014-2015, p. 12 (2014) available at http://www.ey.com/Publication/vwLUAssets/EY-Business-risks-facing-mining-and-metals-2014%E2%80%932015/$FILE/EY-Business-risks-facing-mining-and-metals-2014%E2%80%932015.pdf. 11 Bertelsmann Stiftung, BTI 2014 - Peru Country Report, Gutersloh: Bertelsmann Stiftung, note 6, at p. 8 (2014). 12 KPMG Report, Peru - Country Mining Guide, p. 3 available at https://www.kpmg.com/Ca/en/industry/Mining/Documents/Peru.pdf. 13 International Monetary Fund, Peru – Selected Issues paper, IMF Country Report No. 14/22, p. 11 (2014) available at https://www.imf.org/external/pubs/ft/scr/2014/cr1422.pdf. 14 “The World Bank, Worldwide Governance Indicators 2015 available at http://info.worldbank.org/governance/wgi/index.aspx#countryReports. 15 Ibid.


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previous report of Columbia University16 comprehensively approached economic, social, and environmental impact of mining industry, this report purports to discusses three aspects of the mining industry in Peru; social license, with a focus on indigenous people’s rights, anti-corruption, and Trans Pacific Partnerships (TPP). Sound policy has guided Peru out of crises in the past, and will fortify recent gains through empowering the Peruvian civil society including the resident communities and private sectors. This Report provides legal and policy guidance in establishing more inclusive and sustainable development strategies for the mining sector in Peru so that benefits can be maximized, and negative impacts minimized. THE ECONOMICS OF THE MINING SECTOR: A BRIEF PROFILE As commodities prices rose in the early 2000’s, investment in the mining sector significantly grew from US$ 305 million to US$ 8,568 million (2003-2012).17 In 2013, mining activity accounted for almost 15 percent of total GDP.18 Periods of rampant investment are exciting because they bring significant amounts of immediate cash, and underdeveloped countries then see natural resource extraction as the path towards development. At the same time, foreign companies remain aware of the risk involved in operating in developing or emerging resource-rich nations. Admittedly, the risks vary by country—political risk, price volatility, and corruption can quickly derail projects. In response, oil companies, for example, use their significant negotiating advantages to structure revenue payout to recover their initial investment as soon as possible,19 with the consequence that these companies only have future prospects, or potential profits, to lose. Any natural resource contract can hold to a similar cost-recovery structure, including mining contracts. In addition to signing lopsided contracts, the promise of huge royalties in the short-term can distract governments from the long-term economic benefits of natural resource extraction. This short-term thinking occurs because revenues from mining activity increase the country’s current income without the usual domestic investment. When rising commodities prices cause a flood of investment into a developing economy, fundamental economic metrics like GDP per capita tend to improve, but the foreign investment usually does not result in sustainable economic growth. Sustainable economic growth is a result of fixed investment in infrastructure, education, and technology. Such investment is primarily the domain of the national government and thus depends on tax revenue. When gold and copper prices are high, mining companies deliver significant tax revenue—as much as 16 percent.20 But as we have seen over the last few years, prices are volatile. They can drop suddenly and stay low for unpredictable lengths of time. Such volatility makes national investment planning difficult when the mining industry contributes such a large share of the revenue. Beyond national planning difficulties, funding for programs in place can disappear as well. Corruption and non-transparent contracts can make things worse by diverting revenue away from the state. For example, corrupt officials can divert royalties meant 16See generally Columbia School of International and Public Affairs Report, Mining in Peru: Benefitting from Natural Resources and Preventing the Resource Curse Capstone Workshop – Spring 2015, (2015) available at https://sipa.columbia.edu/sites/default/files/Capstone%20-%20Peru%20(25%20June%202015)_FOR_PUBLICATION.pdf. 17PricewaterhouseCoopers International Report, 2013 – Mining Industry Doing Business in Peru, p. 24 (2013) available at https://www.pwc.de/de/internationale-maerkte/assets/doing-business-in-mining-peru.pdf. 18 Ibid. 19 Jenik Radon, How to Negotiate an Oil Agreement, Initiative for Policy Dialogue Working Paper Series, p. 89 (2006) available at http://policydialogue.org/files/publications/Ch04.pdf. 20PricewaterhouseCoopers International Report, 2013 – Mining Industry Doing Business in Peru, p. 8 (2013) available at https://www.pwc.de/de/internationale-maerkte/assets/doing-business-in-mining-peru.pdf.


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for the state into their personal accounts directly, or indirectly by funneling contract work to companies that pay them. Fortunately, there are ways to solve, or lessen, these problems: increased transparency in contracts, auction-based concessions/licenses, infrastructure and local employment requirements, and stabilization funds ensure that the people benefit from increased revenue. Above all, mining companies must recognize that they are in partnership with the host country.21 The country should recognize that it is the owner of the resource, and thus has the right to determine the terms of its extraction. Further, the resources do not disappear if left in the ground. Previous contracts may have been poorly negotiated, but governments can learn from their mistakes. Some companies might be willing to renegotiate current deals for the sake of future extraction contracts. The government of Peru should view the current downturn in prices as an opportunity to be cautious and deliberate in the mining sector. Now is the time to consider policy, regulation and laws while the pressure to develop is less.

21Jenik Radon, How to Negotiate an Oil Agreement, Initiative for Policy Dialogue Working Paper Series, p. 96 (2006) available at http://policydialogue.org/files/publications/Ch04.pdf http://policydialogue.org/files/publications/Ch04.pdf.


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I. SOCIAL LICENSE TO OPERATE


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SOCIAL LICENSE TO OPERATE I. DEFINING ‘SOCIAL LICENSE TO OPERATE’ In the recent years, securing a social license to operate from the local community has become a critical factor in the success of mining operations. Recurring social conflicts hindering project development in resource rich regions has led mining companies to realize the importance of securing a social license to operate (“Social License”). There is now widespread acknowledgment by mining companies that the consent of indigenous communities is essential for successful mining projects. Over time, indigenous communities have also become increasingly aware of their rights, including the importance of granting a Social License22 accompanied with an expectation that mining companies should seek and secure the Social License for extractive activities in their local territories. In context of the mining industry, the concept of a Social License refers to the social acceptance of proposed mining activities to be carried out by the mining company in the indigenous territories. Although the concept of social acceptance centers mainly on acquiescence by the local communities to mining operations in their territories, it is also necessary to gain social acceptance of other relevant stakeholders such as the local and provincial government. An important aspect of this license relates to engagement and consultation with the indigenous community on the social and environmental risks of the proposed mining operations prior to commencement of project development. This entails discussions on any environmental or social impacts of the mining activities and how the mining company proposes to mitigate said impacts to prevent any adverse consequences. Therefore, to secure and maintain a Social License the following three elements should be ensured:

1. A well-defined stakeholder engagement and consultation process that promotes project awareness and ensures inclusion of the affected indigenous community and other relevant stakeholders;

2. An efficient monitoring and evaluation mechanism that enables governmental authorities to effectively monitor compliance with agreements reached between the indigenous community and the mining company during the engagement process;

3. A grievance mechanism through which indigenous communities can appeal, submit comments or raise concerns against grant of concessions or project activities. The grievance mechanism should have built-in safeguards to ensure that any comments, concerns or grievances raised are adequately addressed. This attribute is essential to ensuring and promoting the transparency of the entire process.

22The scope of the report has been limited to obtaining a social license to operate from the Indigenous communities in Peru. The limitation has been imposed given the requirements of the ILO conventions. However, the concept of obtaining a social license to operate can be extended to all communities that might be impacted by any mining activity.


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II. COMPONENTS OF SOCIAL LICENSE The concept of a Social License is premised on the principle of extractive entities requiring social permission, in addition to routine governmental concessions, for conducting extractive activities. “Rooted in the beliefs, perceptions, and opinions held by the local population and stakeholders,” a social license is reflective of continuous relations between the mining company, the local community, and relevant stakeholders.23 A Social License is comprised of three sequential components: social legitimacy, credibility, and trust.

– Social Legitimacy– Social legitimacy is based on24 the formal and informal social, cultural, and legal norms of a particular community.25 Gaining social legitimacy requires working and engaging with local communities with an understanding of the local cultures, norms, traditions, and community dynamics, including local decision making processes and community protocol, that shape the consent granting process.26 Social legitimacy can only be gained through a continuing community engagement and consultation process that promotes understanding and awareness amongst local communities of the proposed mining activities and its impacts. To be effective, this requires the complete and transparent disclosure of all relevant information.

– Credibility– Credibility must be sought and maintained throughout the project lifecycle. For continued creditability to exist, two requirements must be fulfilled: first the provision of up-to-date, complete and easily comprehensible information relating to all project activities throughout the project lifecycle; and second by ensuring compliance with any established and agreed commitments undertaken by the mining company. 23On Common Ground Consultants Inc and Robert Boutilier and Associates, What Is the Social License?, The Social License To Operate, (2016), available at http://socialicense.com/definition.html. 24 Social legitimacy, as the acceptance of a particular authority, notion, activity, or presence, is shaped by the ecology of beliefs and institutions of the agent that perceives said activity. In the case of extractive activities, gaining a community’s consent is in part dependent on whether the extractive entity is perceived as a legitimate agent. 25 This report deals with this issue in more detail in the section titled “Mapping out the Community” 26 In a Mining and Community Rights panel on Consulta Previa with AS/COA, Emily Greenspan, the Senior Policy Advisor for Oxfam America, spoke about the need for companies to understand the local context and give local communities the time and space to make decisions regarding extractive projects. Rachel Davis, the Managing Director for the Shift Project—an organization that helps governments and business put the UN Guiding Principles on Business and Human Rights into practice—added that such capacity building needs to happen on both the community and corporate side where company officials learn to meaningfully engage with community members. As reported by Mari Hayman, Summary – Mining and Community Rights: Does Consulta Previa Promise Peace or Conflict?, Americas Society / Council of the Americas (2013) available at http://www.as-coa.org/articles/summary-mining-and-community-rights-does-consulta-previa-promise-peace-or-conflict.

Figure 1: Steps to Gaining Social License Image Credit: © On Common Ground


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Formal legal agreements may be executed to ensure compliance with agreed commitments and to empower the local communities to enforce such commitments against the mining company. Following negotiations between the company and the indigenous communities, such formal agreements can record the agreed understanding and expectations relating to project development as well as clearly define the roles, responsibilities, and the consequences of a breach or failure to comply with agreed terms. In the case of Social Licensing, the emphasis is on managing expectations27 and maintaining a relationship to mitigate against the loss of credibility that may jeopardize the legitimacy of an entity or project wishing to operate in the local territory. – Trust– Social legitimacy and credibility are pre-requites for developing trust among the mining company, the local community, and other relevant stakeholders. When coupled with trust, social legitimacy and credibility form the basis of the continued social acceptance of the mining project. The aforesaid components collectively facilitate a cooperative atmosphere that generates opportunities for collaboration to both ensure community consent and benefit the mining company and the local communities.

III. CHARACTERISTICS OF A SOCIAL LICENSEAs discussed, a Social License—symbolizing a local community’s social acceptance of mining activities—is obtained by a mining company’s continued engagement and consultation with communities residing in areas that may be impacted by proposed mining.28 A Social License generally has the following characteristics: – Intangible –Social License is an intangible concept that is rooted in the local communities and relevant stakeholder’s perceptions, beliefs, and opinions about the mining project. In the absence of clear and transparent communications, the intangible nature of the license makes measuring the level of acceptance, discontent or rejection of a project a difficult task to undertake. If the mining company does not maintain and monitor the company-community engagement, it runs the risk of equating the community’s silence with approval and cooperation with trust.29 – Informal–The product of an amalgamation of perceptions, a Social License is a dynamic concept and is a reflection of the local communities’ changing perceptions of the mining company and its project. The non-permanent nature of a Social License adds to the intangibility of the license by complicating attempts at accurately measuring the status of the social approval. Periodic 27 Managing expectations, particularly at the start of an extractive project, is a crucial component of mitigating the social conflict that stems from grievances related to unfulfilled company obligations or increasing community demands regarding benefits beyond the scope of those agreed to by the company. The authors of this report address the issue of managing expectations in more detail later on in this report. 28 The challenges surrounding how to define or delineate impacted communities is explored further in Section J, Challenge #4. 29 Mari Hayman, Summary – Mining and Community Rights: Does Consulta Previa Promise Peace or Conflict?, Americas Society / Council of the Americas (2013) available at http://www.as-coa.org/articles/summary-mining-and-community-rights-does-consulta-previa-promise-peace-or-conflict.


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measurements of local sentiments are therefore key to ensuring that a social license is maintained in the presence of internal and external influences. An informal Social License is in respects difficult to understand when compared to the formal licensing process that entails the granting of a license or concessions by official authorities. In contrast, the granting of a Social License, in the context of the extractive industry, is contingent upon a dynamic relationship between the mining company and local communities. Given its intangible nature, the concept of a Social License is faced with challenges when companies or regulators confine their understanding of social license requirements to only formal state permissions. The aforesaid reasoning is misguided. Instead given the dire consequences of social conflict on mining sector investment, an informal social license plays an important role in securing a community’s acceptance of the project within the web of state permissions that can guarantee little in the face of local resistance.

– Dynamic– The dynamic nature of a Social License is particularly important in the case of frozen projects. The Conga project is a $5 billion dollar project of Yanacocha—a company owned by Newmont Mining Corporation and Buenaventura—that was suspended in 2011 following rising financial costs and social unrest. Although it is possible to halt extractive preparations, activities, and operations, social relationships are much harder, if

not impossible, to freeze given the non-static nature of perceptions influenced by a host of changing variables. Companies and governments should ensure that the initial engagement process is followed by steps to maintain the social relationships.30 The sufficiency and adequacy of the steps can only be understood in a subjective context and may vary depending on the geographical scope of the mining activities, local customs, impacted communities, and spheres of influence. Thus maintaining a Social License requires on-the-ground presence of mining company representatives, equipped with both an understanding of local communities and the relevant resources to perform required tasks.

30 According to community members and certain mining officials, Yanacocha has not been maintaining its community engagement with sufficient number of resources. In order to make the social licensing concept work, a company needs to elevate the position of the official tasked with formal or informally managing this responsibility. If relationship building is delegated solely to community liaison workers, rather than including top management, operational and business development departments, the effort will be viewed as an insincere attempt at bettering a company’s image. By elevating the position of the person in charge, the company can both make a symbolic gesture of its dedication as well as ensure that the individual has the resources and political ground to carry out his or her mission.

Figure 2 - The Slogan "No A Conga" or "No to Conga" carved into a hill in Cajamarca, Peru. Image Credit: Ana H. De La Cruz.


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Crucially, coping with the dynamic nature of social perceptions requires managing community expectations. Over the course of a project’s lifecycle, mining companies should take necessary steps to monitor social perceptions and thereafter endeavor to meet community expectations. – Spatially diverse– A Social license encapsulates the “demands on and expectations for a business enterprise that emerge from neighborhoods, environmental groups, community members, and other elements of the surrounding civil society.”31 Given the spatial nature of said consent, the social license obtained for one type of activity in one particular community, is not necessarily transferable to a similar or different activity in a nearby locale with other indigenous communities.32 In mining projects whose territory or spheres of influence expand across vast amounts of terrain, the questions of how to generate, sustain, and prioritize the social license across various communities is particularly complex. Operating with a limited number of resources and within the context of spatial limits determined by access and distance, the distribution of benefits is often centered upon the zones immediately surrounding the site of operations.33 In such cases, the inequitable distribution of benefits runs the risk of creating inter-community conflicts, as one community comes to reap the benefits more so than others. In the case of Yanacocha operations in Cajamarca, the mining company operates near 120 communities of influence while the Conga Project itself spans across 32 “caserios” or departments. Getting to know and manage the diverse sets of interests and concerns across these communities is a task that requires significant involvement of third parties, such as community groups, research institutes, development agencies, multilaterals, and local as well as international NGOs. Despite attempts at defining the spatial boundaries of a Social License, said boundaries may become permeable in the presence of social conflict. As recent as 2012, representatives of the 32 caserios of Cajamarca have signed a petition calling for the resumption of the Conga 31 Neil Gunningham, Robert A. Kagan and Dorothy Thornton, Social License and Environmental Protection: Why Businesses Go beyond Compliance, Law & Social Inquiry Vol. 29, No. 2 (Spring, 2004), at p. 307, available at http://eprints.lse.ac.uk/35990/1/Disspaper8.pdf. 32 Presentation by Bernice Garcia, Sistema De Transporte Seguro Compañía Minera Antamina S.A.,. (2011) available at http://slideplayer.es/slide/100813/. 33 In the case of the departments within Cajamarca and in the immediate vicinity of Yanacocha’s Conga Project, the distance between communities that receive tangible benefits and those who do not can be marked by a short five minute drive.

Figure 3: The geographical scope of the Antamina company's Mineroducto. Image Credit: Compañía Minera Antamina


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project, arguing that the delays following the social protests of 2012 were caused by individuals from far off departments.34 In circumstances where a Social License is obtained in consultations with specific sections of a broader community, assessing a community’s overall social acceptance of a project becomes more difficult. Therefore, to augment the likelihood of a project’s success it is important to consult all impacted communities within the project area. Non-monolithic: “Community” vs. “Network of Stakeholders”Generally, the term ‘community’ denotes a meaning that “suggests a singleness and purpose that does not always exist.”35 Instead of uniform communities, there are aggregations of communities or interest groups that function as a network of varied interests. The question of whether to refer to the individuals within a sphere of extractive activities as a ‘community’ or ‘network of stakeholders’ is at the heart of issues surrounding the definitional boundaries of ‘impacted’ communities. Referring to a community as a ‘network’ “makes salient the participation of groups or organizations that might not be part of a geographic community” but may nevertheless be impacted by the mining activities.36 In contrast referring to local actors as ‘stakeholders’ implies a network comprised of groups that can affect or be affected by the extractive operations. IV. FREE, PRIOR AND INFORMED CONSENT – Framework for FPIC–Whereas a Social License refers to the social acceptance of any community impacted by a mining project, Free Prior and Informed Consent (“FPIC”) specifically refers to the consent of the indigenous community in the region where the mining concession is being granted. Generally the obligation is on states to, prior to granting the aforesaid concession, engage with the indigenous communities that may be impacted by mining activities and obtain their consent before approving any project that may affect their land or territories. FPIC is an internationally recognized principle that is founded on numerous international instruments, including the UN Declaration on the Rights of the Indigenous People.37 Other international instruments relevant to the context of the FPIC are the ILO Convention 169, the UN Declaration on the Rights to Development, the Human Rights Covenant, Article 27 of the International Covenant on Civil and Political Rights and Article 15 of the International Covenant on Economic, Social and Cultural Rights. Furthermore, since 2012, the International Finance Corporation has included the requirement of obtaining the consent of indigenous communities as a performance standard for responsible mining operations, as well as a condition to continued financing for mining projects. 34 News Report, Caseríos De Cajamarca Exigen Continuidad Del Proyecto Conga, Peru21.pe (2012)available at http://peru21.pe/politica/caserios-cajamarca-exigen-continuidad-proyecto-conga-2047297. 35 On Common Ground Consultants Inc and Robert Boutilier and Associates, What Is the Social License? The Social License To Operate, (2016), available at http://socialicense.com/definition.html. 36 Ibid. 37 Article 32(2) of the UN Declaration on the Rights of Indigenous Peoples (accessible at http://www.un.org/esa/socdev/unpfii/documents/DRIPS_en.pdf) provides the following: “States shall consent and cooperate in good faith with the Indigenous Peoples concerned through their own representative institutions in order to obtain Free, Prior and Informed Consent prior to the approval of any project affecting their land or territories”.


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– A Legal, Valid, and Binding FPIC–In order to be legal, valid, and binding, the consent of the community should be free, prior, and informed. The aforesaid statement is comprised of the following elements all of which are interrelated and must be present for consent to be valid: FreeFree refers to the voluntary nature of the process and implies that the consent should be procured without coercion, manipulation or intimidation of the indigenous community. While the indigenous community may lack the sophistication, organization, and resources of the mining company, they have inherent rights that should be respected. The requirement of no coercion is intended to preempt and prohibit all forms of coercion that may detract from the process of freely giving consent. This includes coercion resulting from the imposition of deadlines or timelines within which decisions are required to be made. Thus it is essential that there be compliance with and respect for customs, traditions, and practices that may be relevant to the decision-making processes of the indigenous communities. Thus, the FPIC process should be open-ended giving the communities adequate time to make decisions in accordance with their customs and practices. PriorPrior refers to the in advanced procurement of an indigenous community’s consent that is before the granting of a concession or commencement of project development. Thereafter, prior is inclusive of the understanding that the consent is of a continuing nature and will thereafter be sought prior to each major stage of project development. Crucial to prior consent is the timely and well in advance provision of project information that will allow communities to reach an informed decision. Informed To satisfy informed consent, the indigenous community should be provided all information related to the mining project and activities in a comprehensible manner that allows the communities to make an informed decision on whether or not to grant consent. This component is centered on the level of communication with the impacted indigenous communities and involves the provision of complete and accurate information about the extractive project including matters such as the ownership of rights, the anticipated financial, political, social and environmental impact assessment results and other information that is necessary for an indigenous community to arrive at an informed decision. All information should be provided in the local language and in a non-technical form that is easily comprehensible to the indigenous communities. A critical aspect of informed consent merges with the continuing nature of FPIC and mandates an ongoing communication channel whereby the indigenous community is constantly updated and kept informed of all project activities including those that may impact the validity of the continuing consent. This may be relevant if the circumstances on which consent was based and previously granted are no longer reflective of actual circumstances, therefore requiring that the consent be revisited in light of changing events.


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ConsentConsent refers to the collective decision made by the indigenous communities on whether or not the consent to the proposed project on the basis of the information that has been provided to them. Given the impact mining may have on the land and culture of indigenous communities, it is imperative that their consent be procured for such activities. In the event the indigenous community does not grant its consent, the project should not be allowed to proceed unless community concerns are addressed. Thus the component of consent is reflective of the “right to say no” to any proposed activity/project. Procuring consent should be a participatory process that not only involves constant dialogue with the leaders of the community, but also the rest of the community including those marginalized members. Consent must be forthcoming from the indigenous community as a whole and must be reached through a participatory process that ensures inclusion of minorities such as youth and women. The FPIC should be a legally binding requirement for any mining project developed in areas inhabited by indigenous communities. To this end, enacting national legislation that both incorporates principles relating to FPIC set out in ILO Convention 169 and that recognizes the inherent right of indigenous communities to give consent can strengthen the mandatory nature of FPIC. In recognition of the continuing nature of the FPIC process, the consent must be reviewed and renewed on an ongoing basis throughout the project lifecycle. According to the World Bank, the FPIC review and renewal process should be carried out every year, as the project develops to account for new demands. This would account for changes in expectations of the indigenous communities or in project development that deviates from the understanding that formed the basis of the previous community consent. In many respects, the indigenous community is not at par with the mining company therefore placing it at a disadvantage in determining how the mining activities are executed. In some instances, NGO’s or government departments may represent such communities, but even they may lack the resources and the professional sophistication amassed by the mining companies. In recognition of and to protect the inherent rights of the indigenous community, the onus is on the company to procure the consent on the aforesaid basis. One proposed means to achieve this is the execution of formal legal agreements between the company and the indigenous community. The relevant government departments may also be parties to this agreement in order to facilitate the negotiation, implementation, and enforcement of the agreement, including any cross default provisions with government issued permits, licenses or concessions. – A Formal Legal Agreement–In some instances, mining companies and local community representatives have executed simple handwritten agreements recording the understanding reached following informal negotiations.38 38 Information provided by the personnel at Sumitomo Metal Mining in interview conducted on March 10, 2016.


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These are simple handwritten documents, usually short one page agreements, that set out the oral agreement and promises made by the company in return for the community permitting the execution of certain mining activities on the territory.39 While the simplicity of such agreements, in that they are readily understandable by the indigenous communities, may appear beneficial in the short-term, they leave much to be desired. As an alternative, the proposed formal legal agreement carries with it a degree of permanence as it is embedded with legal rights. This lends stability to project development by engaging the indigenous community as partners and involving them in the decision-making process thereby reducing the possibility of social conflicts. The proposed form of the legal agreement titled ‘Community Consent and Partnership Agreement’ (attached as Exhibit 1) attempts to offset concerns raised in relation to the treatment of indigenous communities in the Peruvian extractive industry. The numerous instances of social conflict in Peru have highlighted the importance of a legal, valid, and binding agreement. Of the many factors that fuel social conflicts deals with the loss of credibility that emerges when indigenous communities encounter mining companies reneging on their promises. In other instances, the company engages in mining activities without regard for the culture or the environment of the indigenous territories. In the absence of government intervention to penalize the company’s actions or ensure the enforcement of promises, the indigenous communities resort to strikes, block outs etc. resulting in social conflict. In several cases, the mining projects are carried out in areas lacking state presence and basic public facilities. When mining activities represent an opportunity to bring development to these areas, indigenous people are by way of right, entitled to all the resulting benefits. A legal, valid, and binding formal agreement seeks to bring it all together. The agreement sets out various steps for engagement of the indigenous community in all stages of the project development including provisions allowing for information sharing and monitoring of the project. The company’s various commitments, including the provision of jobs, education, training or the creation of development funds are all to be included in the agreement with imposition of penalties and cross defaults in the event of a breach. The agreement also requires a company to obtain and maintain the indigenous community’s free, prior and informed consent throughout the project lifecycle. Furthermore, the agreement includes the basic protective provisions absent in the existing one-page agreements. Such formal legal provisions are the bedrock of the legal, valid, and binding nature of agreements as they outline the consequences and remedies for breach, enforcement and means of dispute resolution. Without these provisions, the indigenous community has no recourse, except social conflict, to both seek enforcement of promises made and hold the company accountable for any environmental violations. The formalization process does not derogate from the importance of community inclusion. The execution of a formal legal agreement does not detract from the need for regular on the ground engagement and community consultation by the company. The company will still be required to


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consult and engage the indigenous community to keep them engaged at all stages while ensuring that their expectations are met. To ensure that the community benefits from the formalization process, it is imperative that they be able to understand and thereafter rely and enforce the protections provided for in the legal agreement. Therefore, the agreement has been structured and authored in a simple, but clear language and manner so as to be comprehensible for the community members all while retaining its legal provisions. In other countries, projects set up in indigenous territories have executed formal legal agreements with indigenous communities. Such agreements commonly referred to as ‘Community Development Agreement’ or ‘Impact Benefit Agreements’ have been met with varying degree of success. The proposed draft of the ‘Community Consent and Partnership Agreement’ has been prepared as a discussion draft keeping in view the issues faced by the indigenous persons in Peru where this legal framework remains untested and its legal ramifications unknown.


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V. WHY IS IT IMPORTANT? (THE CASE FOR SOCIAL LICENSING) In 2014, Ernst and Young named a social license to operate as the 3rd most important business risk to the mining and metals industry.40 Indicative of recent normative shifts surrounding social corporate responsibility, over time, companies have come to recognize the importance of “bring[ing] host communities along with them on their road to prosperity,” as a prerequisite to successfully operating in the area of the community.41 Identifying and, to the extent possible, quantifying the social and economic impacts of extractive activities is a process that requires analysis of the dynamics of individual communities as well as dialogue with a broad array of stakeholders. Impact assessments and the consultative process require substantial time investments that can add to the time needed for a project to materialize, thus, according to former Shell International VP for External Affairs Donal A. O’Neill interfering with the “investment decisions made on discounted cash-flow economics.”42 However, the abandonment and postponement of projects due to the inability to obtain or sustain a social license to operate means that early, ongoing,43 and in-depth community engagement are of great importance in reducing the likelihood of the social conflict that threatens investment. – Shift in Norms–Today’s globalized and interconnected world has provided communities with the space to understand their rights. Although lacking formal political representation of their interests,44 indigenous communities are more conscious of their rights in relation to the mining activities conducted in their territories. In Peru, the paternalistic business approach of the 1990s that carried on into the early 2000s caused tensions between the Yanacocha mining corporation and the communities of Cajamarca whereby the latter was left resenting their marginalization from the developmental process.45 Normative shifts have also introduced frameworks within which governments may work to protect the rights of indigenous communities. In some instances these international frameworks, such as the principle of obtaining a free, prior, and informed consent

40 E&Y Report - Business Risks Facing Mining and Metals 2014-2015, pp.16-18 (2014) available at http://www.ey.com/Publication/vwLUAssets/EY-Business-risks-facing-mining-and-metals-2014%E2%80%932015/$FILE/EY-Business-risks-facing-mining-and-metals-2014%E2%80%932015.pdf. 41 Ibid, p. 20. 42 Donal A. O'Neill, Chapter 8: Impact Assessment, Transparency, and Accountability: Three Keys to Building Sustainable Partnerships between Business and Its Stakeholders, Peace through Commerce: Responsible Corporate Citizenship and the Ideals of the United Nations Global Compact. Ed. Oliver F. Williams. Notre Dame, IN: U of Notre Dame, p. 14 (2008). 43 Should be a constant process, not just one that is initiated prior to the project or that stops when activities begin – Information as provided by confidential source b in interview conducted on March 15, 2016. 44 Interview with Cesar Chavez Arevalo, Regional Commissioner for Arequipa – ONDS on March 16, 2016. 45 Information as gathered from interviews at Yanacocha on March 16, 2016 and with source b on March 15, 2016.

Figure 4: Top 10 Business Risks to Mining and Metals. Image Credit: Ernst and Young, Business Risks Facing Mining and Metals 2014-2015.


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of indigenous communities, have also been incorporated in domestic laws of countries so as to be directly applicable.

– Costs– Following the normative shifts in the standards of socially responsible corporate behavior and the emergence of communities that are more aware of their rights, stakeholder risks in the extractive industry have increased over the past two decades. The reactions of local communities to negative environmental or health impacts of extractive projects have the potential to escalate from minor complaints to outright social conflict involving protests, strikes, death, and injury. Such occurrence in turn threatens the development and operations of mining activities. Thus, it is imperative that mining companies and governments in mining areas understand the economic and social costs of social conflict in the context of mining activities.46

As part of the Harvard Kennedy School (HKS) Corporate Social Responsibility Initiative, Rachel Davis and Daniel M. Franks sought to better identify and account for the costs of social conflicts. Project delays are regarded as the most frequent cost associated with company-community conflicts. According to the results of the study, these costs arise from “the inability to pursue future projects and/or opportunities for expansion or for sale.”47 With respect to the loss in productivity during times of conflict, a world-class mining project with a capital expenditure of between US$ 3-5 billion would lose approximately US$ 20 million per week of delayed production in Net Present Value (NPV) terms.48 49

While the greatest costs of conflict include the opportunity cost in terms of the lost value tied to future projects, companies also tend to overlook costs associated with periods of company-community conflicts. According to the HKS report, the most overlooked expense is staff time dedicated to managing conflict. Management time spent dealing with community conflicts can range from 5% to 35- 50% of the manager’s time.50

While costs associated with social conflicts have a direct impact on the companies and, consequently, government revenues, it is important to note that project delays, stakeholder tensions, and inadequate grievance mechanisms could lead to further negative consequences for the communities themselves. As a result of social conflict, such communities stand to be deprived of any

46 Rachel Davis and Daniel Franks. Costs of Company-Community Conflict in the Extractive Sector, Corporate Social Responsibility Initiative Report No. 66. Cambridge, MA: Harvard Kennedy School, p. 8 (2014) available at https://www.hks.harvard.edu/m-rcbg/CSRI/research/Costs%20of%20Conflict_Davis%20%20Franks.pdf. 47 Ibid, p. 20 48 Ibid, p. 8 49 E&Y Report - Business Risks Facing Mining and Metals 2014-2015, p. 18 (2014) available at http://www.ey.com/Publication/vwLUAssets/EY-Business-risks-facing-mining-and-metals-2014%E2%80%932015/$FILE/EY-Business-risks-facing-mining-and-metals-2014%E2%80%932015.pdf 50 Rachel Davis and Daniel Franks. Costs of Company-Community Conflict in the Extractive Sector, Corporate Social Responsibility Initiative Report No. 66. Cambridge, MA: Harvard Kennedy School, p. 20 (2014) available at https://www.hks.harvard.edu/m-rcbg/CSRI/research/Costs%20of%20Conflict_Davis%20%20Franks.pdf.

Figure 5: Costs of Social Conflict. Image Credit: Ernst and Young, Business Risks Facing Mining and Metals 2014-2015.


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“Many companies still see social investment as the number one risk mitigation strategy...[So if] you ask [Company A] how much they spend on [Country X] every year, which is probably about

USD$60 or 70 million a year, they will do that for no other reason than…social risk mitigation. The fact of the matter is, it doesn’t work. You know there’s no [Company A] employee that has the nerve to go outside the gate with a [corporate] emblem on his or her shirt. They don’t do it...If anything, it creates more conflict rather than reduces [it]...[I]t is a widely held assumption that as long as you build schools and clinics, that people will be happy and won’t attack you. And the evidence is overwhelmingly

that that’s not the case.” - Rachel Davis and Daniel Franks. Costs of Company-Community Conflict in the

Extractive Sector, p. 24 (2014)

economic, employment or social benefits generated by local mining activities. For instance following the shutdown of Yanacocha’s Conga mine, the company reported the estimated loss of USD 2 million a day as well as the termination of employment of 6,000 workers.51

Figure 6: Cases of Company-Community Conflict: Proximate Issues/Issues in Dispute. Image Credit: Rachel Davis and Daniel Franks, Costs of Company-Community Conflict in the Extractive Sector52

Creating a framework for a Social License is an important first step to crafting the stability that would attract foreign investment in a country’s mining sector. In its existing legal provisions for community engagement and prior consultation of indigenous peoples, Peru has made strides in a positive direction. With social licensing concepts remaining to be identified and expanded upon in Peru—an understandable reality given their spearheading role—ensuring the enforcement of such a framework will continue to be a work in progress.

While the pressure of environmental and social impact assessments may be perceived as an expensive process undertaken to satisfy criticism, the tools serve as means with which to add and sustain a project’s long-term value and thus should be viewed as a positive form of engagement that should be extended beyond the borders of indigenous

51 Naomi Mapstone, Workers kidnapped in protest at Peru mine, Financial Times, March 16, 2012, available at http://www.ft.com/cms/s/0/f764b140-6f9b-11e1-b368-00144feab49a.html#axzz4GOk0Sfq4. 52 Rachel Davis and Daniel Franks. Costs of Company-Community Conflict in the Extractive Sector, Corporate Social Responsibility Initiative Report No. 66. Cambridge, MA: Harvard Kennedy School, p. 17 (2014) available at https://www.hks.harvard.edu/m-rcbg/CSRI/research/Costs%20of%20Conflict_Davis%20%20Franks.pdf.


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communities.54 In essence, a Social License should not represent an obstacle to energy-related politics and the mining activities that are important for development. Attempts at introducing and strengthening the principle of a Social License is about trying to articulate and harmonize extractive activities with the rights of communities and the standards of environmental protection. In order to build strong community relations essential to the sustainable operation of a project, governments and companies need to distinguish the costs of investing in community development from the amount allocated towards social risk mitigation. Community development represents the preemptive measures aimed at obtaining community acceptance of the project; this type of community development stands in contrast to arbitrary mitigation measures aimed at managing specific instances of social conflict and protest as and when they arise on a case by case basis. Failing to differentiate between the costs of community development and the costs of preventative or mitigation measures could undermine the relationship building process with the community as a whole.55 Focusing on mitigation measures in the absence of a complete community development agenda and conflating social investment with social risk mitigation can result in rewarding those individuals who are most vocal. Directing efforts to appease vocal protestors risks ignoring other community members who want to reap the benefits of project development without resorting to protests and violence.56 For instance in Cajamarca—the location of the Conga Project—some community members used protest tactics as leverage against the Yanacocha mining company to gain employment. In these communities, non-protesting community members were left frustrated as their attempts to cooperate and not resort to violent protests went unrewarded, unlike the community members who initiated social conflict. Therefore, the company emphasis should be on community development that preempts and offsets the need to resort to protest and social conflict by engaging with and ensuring the equal provision of developmental benefits amongst all community members. VI. SOCIAL CONFLICT IN PERU

As identified by Inter-American Development Bank, Peru has emerged as one of the most promising developing economies in Latin America. Peru’s GDP has risen from US$ 50 billion in year 2000 to more than US$ 200 billion in 2016 with a projected growth rate of 3.6%.57 Despite the aforementioned positive economic growth indicators, there are continuing concerns about the

54 See Donal A. O'Neill, Chapter 8: Impact Assessment, Transparency, and Accountability: Three Keys to Building Sustainable Partnerships between Business and Its Stakeholders, Peace through Commerce: Responsible Corporate Citizenship and the Ideals of the United Nations Global Compact. Ed. Oliver F. Williams. Notre Dame, IN: U of Notre Dame (2008). 55 Rachel Davis and Daniel Franks. Costs of Company-Community Conflict in the Extractive Sector, Corporate Social Responsibility Initiative Report No. 66. Cambridge, MA: Harvard Kennedy School, p. 9 (2014) available at https://www.hks.harvard.edu/m-rcbg/CSRI/research/Costs%20of%20Conflict_Davis%20%20Franks.pdf 56 Interviews conducted with communities of Cajamarca, which are affected by the Conga Project, revealed that some community members used protest tactics as leverage against the mining company to gain employment opportunities. Certain community members expressed their frustration with what they saw as their cooperation (i.e. failure to protest) and the subsequent lack of employment reward vis-à-vis those neighbors who did stir social conflict. 57 Carlos Basombrio, Peru 2015: Inept Leadership Threatens to undermine growth in spite of strong fundamentals, Geopolitical Intelligence Services (2015) available at https://www.gisreportsonline.com/peru-2015-inept-leadership-threatens-to-undermine-growth-in-spite-of-strong-fundamentals,economy,246,report.html.


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sustainability of Peru’s growth trajectory, one reason being the proliferation of social conflict in the extractive industry. Mining sector development drives the economic growth of a resource rich country like Peru. The sustainable development of Peru’s mining sector has been affected by social conflicts that have in some instances caused project development to be suspended or cancelled, therefore deterring potential possibilities for continued investments. Prominent examples include investments of US$ 1.6 billion in Tia Maria, Arequipa and US$ 5 billion in Conga, Cajamarca. Both projects were suspended as a result of social conflict and continued local community opposition over the fear of contamination and reduced local water supply due to mining activities.58 These instances of social conflict have had widespread ramifications in Peru. The suspension of the Conga Project—a gold and copper mining project in northern Cajamarca, Peru—was followed by two months of bloodshed that resulted in the declaration of a state of emergency. In the ensuing conflict, five protestors were killed and the violent arrest of Marco Arana—an internationally acclaimed environmentalist—was caught on camera for all to see.59 The political repercussions of the events led to changes in the cabinet, as well as the dismissal of then Prime Minister Oscar Valdes on July 23, 2011.60 The dismissal of the Prime Minister Oscar Valdes by President Ollanta Humala over the former’s handling of the Conga mining project61 62 illustrates the importance of the extractive industry in Peru. Recently, in September 2015 the current President Ollanta Humala once again declared a state of emergency for thirty days in the regions of Cusco and Apurimac due to protests against the construction of the Las Bambas mining project.63 The local community’s demands included the creation of jobs and channeling of mineral concentrates from the mining process from the region. In an attempt to increase the social acceptance of mining activities in regions, there have been attempts to share a mining project’s benefits with local communities. One such measure includes the decentralization reforms passed in 2003 that transferred resources and revenues generated from mining activities by the national government to the local and regional governments. Unfortunately, as noted in Capstone Report of 2015,65 due to a lack of adequate planning, funding, training, and expertise to properly deal with the mining-related responsibilities allocated to local and regional governments, decentralization has fueled rather than resolved conflict.

58 In Conga, the suspension followed two months of bloodshed and high tension, as local opposition and police intervention under a state of emergency resulted in the deaths of five demonstrators in Bambamarca and Celendín as well as the arrest in plain view and captured on video of Marco Arana, an internationally well-known environmentalist leader. The fallout led to two cabinet shuffles and a change of prime minister. See Joan Martinez-Alier, Conga Project: The End of the Line, available at http://www.ejolt.org/2012/08/conga-project-the-end-of-the-line/. 59 Ibid. 60 See http://rulers.org/rulp1.html#peru. 61 Joan Martinez-Alier, Conga Project: The End of the Line, available at http://www.ejolt.org/2012/08/conga-project-the-end-of-the-line/. 62 The protests left five people dead and President Humala's popularity rating the lowest it has been since he took office a year ago. See Profile: Peruvian Prime Minister Juan Jimenez Mayor. BBC (2012) available at http://www.bbc.com/news/world-latin-

america-18970126. 63 Peru: Region in State of Emergency After Deadly Protests at a Mine, New York Times (2015) available at http://www.nytimes.com/2015/09/30/world/americas/peru-region-in-state-of-emergency-after-deadly-protests-at-a-mine.html. 65 Columbia School of International and Public Affairs Report, Mining in Peru: Benefitting from Natural Resources and Preventing the Resource Curse Capstone Workshop – Spring 2015, (2015) available at https://sipa.columbia.edu/sites/default/files/Capstone%20-%20Peru%20(25%20June%202015)_FOR_PUBLICATION.pdf


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Three primary causes of social conflict in Peru can be identified from the aforesaid instances and events: First is the undermining of the indigenous communities’ rights to their land during the government’s granting of mining concessions. In Peru, the government has the right to minerals found in the land regardless of whether the land is owned or inhabited by local communities. As a result, the government’s decision to grant a mining company an extractive concession often excludes the local communities from the process. This exclusion can result in a failure to consult and inform local communities of the impacts, including environmental effects such as the contamination of scare water sources, resulting from the mining activity. A mining company’s singular purpose of mineral extraction can also lead to a lack of consideration of the adverse impacts of pollutants, the diversion of water resources or displacement of persons from their traditional territories. Such exclusion of local communities from the developmental process results in a resentment that manifests itself in protests and social conflict. Second, the competing interests of participating entities (national government, provincial government, local government, mining companies and communities) result in the mismanagement of community expectations leading to social conflict. For instance, the company and government’s profit and revenue driven concerns may run contrary to the community’s expectation of social development funded by mining activity. Furthermore, in this context mismanagement results in social conflict when the mining companies do not fulfill commitments made to the local communities. Lastly, this mismanagement of resources and processes, lack of aligned interests and the inability of the affected to seek legal recourse result in continued social conflict. At the core of this social conflict are people who are unjustly excluded from the decision-making process, and are disproportionately affected by the outcomes. To understand how to address social conflict within mining sector in Peru, the next section delves deeper into the intricacies of obtaining social license to avoid social conflict. – Identifying Indigenous Communities in Peru for Obtaining Social License –In recognition of the debilitating effect of social conflict on investments, Peru has developed a legal framework as part of its commitment to sustainable development of natural resources. This is reflected in the ratification of ILO convention 169 and the enactment of Consulta Previa and Participacion Ciudadana.66 These laws guarantee indigenous people the right to consent in the case of relocation, transportation, and storage of toxic wastes, as well as in situations where their lives or their means of subsistence are threatened.67 Although this is a step in a direction that prioritizes the rights of the affected communities, the law’s current form has limitations in its implementation. Peru has diverse indigenous communities that fail to classify under the single objective criterion that fails to account for varying differences amongst indigenous groups. Thus, the complex 66 Ibid, p. 102 67 Ibid.


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portrait of Peruvian indigenous experiences and politics complicates attempts at demarcating what in other societies emerges as a clear distinction between indigenous communities and the rest of society. With no internationally agreed upon definition of indigenous peoples, the result has been the creation of varied definitions of what constitutes as “indigenous,” making it difficult to create and enforce laws that take into account such complexities and protect indigenous peoples in Peru. – United Nations– One of the attempts at providing a framework under which to formulate a working definition of indigenous communities, peoples, and nations,” was developed by former Special Rapporteur of the Sub-Commission on Prevention of Discrimination against Indigenous Populations Jose R. Martinez Cabo68 as follows: “Indigenous communities, peoples and nations are those which, having a historical continuity with pre-invasion and pre-colonial societies that developed on their territories, consider themselves distinct from other sectors of the societies now prevailing on those territories, or parts of them. They form at present non-dominant sectors of society and are determined to preserve, develop and transmit to future generations their ancestral territories, and their ethnic identity, as the basis of their continued existence as peoples, in accordance with their own cultural patterns, social institutions and legal system.

This historical continuity may consist of the continuation, for an extended period reaching into the present of one or more of the following factors:

a) Occupation of ancestral lands, or at least of part of them; b) Common ancestry with the original occupants of these lands; c) Culture in general, or in specific manifestations (such as religion, living under a

tribal system, membership of an indigenous community, dress, means of livelihood, lifestyle, etc.);

d) Language (whether used as the only language, as mother-tongue, as the habitual means of communication at home or in the family, or as the main, preferred, habitual, general or normal language);

e) Residence on certain parts of the country, or in certain regions of the world; f) Other relevant factors.

“On an individual basis, an indigenous person is one who belongs to these indigenous populations through self-identification as indigenous (group consciousness) and is recognized and accepted by these populations as one of its members (acceptance by the group).

“This preserves for these communities the sovereign right and power to decide who belongs to them, without external interference.”69

68 Jose R. Martinez Cobo, Study on the Problem of Discrimination against Indigenous Populations. Rep. United Nations Economic and Social Council (1983) available at http://www.un.org/esa/socdev/unpfii/documents/MCS_xvii_en.pdf. 69 Ibid.


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–International Convention– The Indigenous and Tribal Peoples Convention established in 1989 is an International Labour Organization (ILO) Convention, also known as ILO Convention 169. As the primary international convention concerning the rights of indigenous peoples, it applies to:

“(a) tribal peoples in independent countries whose social, cultural and economic conditions distinguish them from other sections of the national community, and whose status is regulated wholly or partially by their own customs or traditions or by special laws or regulations; (b) peoples in independent countries who are regarded as indigenous on account of their descent from the populations which inhabited the country, or a geographical region to which the country belongs, at the time of conquest or colonization or the establishment of present state boundaries and who, irrespective of their legal status, retain some or all of their own social, economic, cultural and political institutions.”70

With regards to ethnic and cultural identity, ILO Convention 169 establishes self-identification as indigenous or tribal as a “fundamental criterion for determining the groups to which the provisions of this Convention apply.”71 – Peruvian Law– Peru is one of the few countries worldwide that has codified the rights of indigenous people in the ILO Convention 169 under its national legislation titled Directiva N° 03-2012/MC (RM N° 202-2012 MC)72 (“Directive 202”). The Directive 202 sets out objective and subjective criterions for identification of indigenous persons. Under objective criterions, the identification of indigenous peoples is based on:

● historical continuity, defined as permanence within the national territory extending to the time period before the establishment of the state

● territorial connection, defined as the ancestral population’s occupation of a zone within the country

● distinct political, cultural, economic, and social institutions that are preserved, partially or in their entirety, by the groups in question

Under the subjective criterion, the identification of indigenous peoples is based on:

● the auto-identification of the individuals that form part of human collective as members of an indigenous community or native of the national territory.

70Article 1(1) of ILO’s Indigenous and Tribal Peoples Convention, 1989 available at http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_ILO_CODE:C169. 71Article 1(2) of ILO’s Indigenous and Tribal Peoples Convention, 1989 available at http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_ILO_CODE:C169 72 See Base De Datos De Pueblos Indígenas U Originarios: Identificación De Pueblos Indígenas. Ministerio De Cultura available at http://bdpi.cultura.gob.pe/identificacion-de-pueblos-indigenas.


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Peru’s Database of Official Indigenous Communities and Natives, as managed under the Directiva N° 03-2012/MC (RM N° 202-2012 MC), has also incorporated two additional criterions for the identification of indigenous communities:

● Language as a principle social and cultural institution and, ● Communal territory recognized by state entities, in so far as they constitute a

factor in establishing territorial connection.

The diverse array of indigenous communities in Peru presents challenges to obtaining the Social License in different geographical parts of the country as certain groups are excluded under Peru’s current criteria for identifying indigenous and native peoples. This report addresses said challenges in more detailed under the section titled, “Evaluating the Implementation of Consulta Previa in Peru.” – Consulta Previa in the Context of Peru–

Consulta Previa, the Law of the Right to Prior Consultation for Indigenous and Native People (“Consulta Previa”), was passed by the Government of Peru in 2011. A progressive application of international human rights standards to protect the interests of indigenous communities, the law addresses the right of indigenous and native people to be consulted with regards to the legislative and administrative measures that directly affect their collectives rights including physical existence, cultural identity, quality of life or development.73 Consulta Previa and the Citizen Participation Law of 1990 (“Participacion Ciudana”) are meant to provide the forum for dialogue and participation of all stakeholders in mining activities, in an attempt to reduce social conflict and increase mutual benefits. The implementation of Consulta Previa is reflective of ongoing efforts to institutionalize intercultural dialogue and develop an effective mechanism to address the roots causes of conflict. Established by the regional authorities and the Oficina Nacional de Diálogo y Sostenibilidad (National Office of Dialogue and Sustainability—ONDS), the mesas de diálogo (dialogue roundtables) and mesas de desarrollo (development roundtables) are indicative of Peru’s attempts at institutionalizing consultation. The consultation required by the Consulta Previa is structured under a formal process comprised of seven stages. Despite the impetus to address community concerns and demands, issues regarding how to accurately define indigenous communities and manage the power asymmetries between communities and powerful corporations, among others, complicate the effectiveness and implementation of Consulta Previa: – Formal Process– Consulta Previa (Ley No. 29785) specifies that state entities promoting legislative or administrative measures should comply with the following stages in the consultation process with indigenous communities:

73 Article 2 of Law No. 29785.


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Figure 7 – The Consulta Previa Proces in Peru. Image Credit: Ministry of Culture74

1. Identification of the legislative or administrative measure that mandates consultation The state entities are responsible for identifying proposed legislative or administrative measures that have a direct connection or effect on the collective rights of the indigenous persons. In such instances, a prior consultation with respect to such measures will be required.

2. Identification of the indigenous or native peoples to be consulted: The state entities should identify the indigenous and native peoples within the geographic scope where the identified measure will be carried out. The process includes the criteria for the identification of indigenous and native peoples such as historical continuity, territorial connection, distinct institutions, and auto-identification.

3. Publicity of the legislative or administrative measure The state entities promoting the measure should identify the institutions and organizations representative of the indigenous peoples and natives that should be consulted. This stage requires the state entities (Ministry of Energy and Mines) to provide the representative organizations with a proposal of the measure as well as the “Consultation Plan,” which establishes the date, locations, and methodology under which the informed consent will be carried out.

4. Information regarding the legislative or administrative measure From the start of the consultation process and with due forewarning, state entities are required to provide indigenous communities and their representatives with information regarding the motives, implications, impacts, and consequences of the proposed measure. This may be done through community informational workshops in the presence of an interpreter registered with the Ministry of Culture. Participants receive information regarding the exploration activities, possible effects to their collective rights, and the right to informed consultation and its respective stages.75

5. Internal evaluation of the institutions and organizations of the indigenous or native peoples over which the legislative or administrative measure will have a direct impact The institutions and organizations of the indigenous and native peoples initiate an internal evaluation in which the representative organs analyze the scope and impact of the measure as well as its relation to the collective rights. The community proceeds to send the DGAAM (Directorate General of Mining Environmental Affairs, MINEM) the internal evaluation indicating whether the community is in agreement over the initiation of exploration activities. The community can solicit demands with regards to environmental matters, the establishment of audits and control over the activities, employment opportunities, and permanent updates regarding the activities.

74 Etapas De La Consulta., Consulta Previa, Ministerio De Cultura. available at http://bdpi.cultura.gob.pe/identificacion-de-pueblos-indigenas.


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6. Process of dialogue between the representatives of the state and the representatives of the indigenous or native peoples A dialogue unfolds between the state and the representative organs of the indigenous and native peoples where both parties attempt to reach a consensus between the proposed measure and the positions, suggestions, and recommendations presented by the indigenous and native peoples.76

7. Decision The final decision regarding the approval of the measure lies with the competent state entity. Such decision should be motivated by an evaluation of the point of views, suggestions, and recommendations put forth by the indigenous and native peoples during the dialogue process, as well as the analysis of the consequences that the adoption would have on the constitutionally recognized collective rights. In the event of failure to reach an agreement, it is up to the state entities to adopt all of the necessary measures guaranteeing the collective rights of the indigeous and native peoples as well as the rights to life, integrity, and development.

Following the implementation of the aforesaid seven consultative stages of the Consulta Previa process, three possible results can emerge: first, the state may obtain consent from the community; second, the community may withhold its consent in which case the state may nevertheless approve and proceed with the project; or third, the community withholds its consent and the state decides to reinitiate the Consulta Previa process in an attempt to secure the community consent in the second round of consultation. Proceeding with a project without procuring community consent under Consulta Previa may result in social conflict. Despite the attempt at institutionalizing consultation, Consulta Previa faces many implementation complexities (as discussed below) that may undermine the effectiveness of the process.

– Challenges in the Implementation of Consulta Previa in Peru– The law of Consulta Previa includes components required of any process that aims to consult and obtain constructive input for project development from local communities. Consulta Previa places an emphasis on dialogue and accessibility, both in terms of language and physical space. In many respects, Consulta Previa is a step in the right direction as its objective is to promote respect and preserve the inherent rights of indigenous communities recognized by the Peruvian constitution and international norms such as the ILO Convention 169. Despite the benefits and strengths of Consulta Previa, there remain challenges in its implementation: – Timing –The issue of timing introduces significant challenges to the mechanisms for environmental assessment and the community engagement activities of extractive entities. Following discussions with different stakeholders in Peru, including the Ministry of Energy and Mines, state and regional government officials, mining corporations, civil society groups, NGOs, and local communities, it appears that there is uncertainty as to when Consulta Previa should be initiated.77 Some require the Consulta Previa process to be carried out after the EIA while others propose multiple insertions of the mechanism throughout the consultations. Thus, issues regarding the timing of Consulta Previa speak to the broader question of when to begin 76 The community discusses whether to agree that the Internal Evaluation Act, in accordance to the provisions of Article 19 of Supreme Decree No. 001-2012-MC Regulations of the Act of Informed Consent, will be taken by the entity as record of informed consent. 77 Information provided by Independent Organization under MINEM, interview on March 15, 2016;Information provided by DAR in interview conducted on March 14, 2016.


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engagement in the name of conflict prevention. Within the extractive company itself, there exist conflicting perceptions between the social management and more technical divisions of the company’s operations regarding the amount of time available and required to build relationships or seek community consent. Perceived tradeoff between commencing profit bearing extractive activities or securing community consent presents a serious challenge to the commitment of parties in terms of time and effort allocated to the consultation process.

Ideally, consultation and other processes under Consulta Previa should be carried out at the start of a concession period.78 This would ensure that a local community’s concerns are both known and addressed at the outset rather than emerging later and resulting in social conflict upon being disregarded or overlooked. Effective compliance and compliance enforcement requires Peru to clearly address the question of when to begin engaging indigenous and natives peoples in the consultation process. Similarly, extractive companies need to reconcile conflicting perceptions of timing in order to dedicate sufficient time to the community consultations. Companies should work towards conducting ongoing consultations and dialogue that create long-term partnerships with the communities. While it is important to begin community engagement before the construction or operations of a particular project, governments and extractive companies should view said engagement not just as prior consultation, but also as a process of constant consultation. – Defining Indigenous Communities –Peru is comprised of a diverse array of indigenous communities—a reality that poses a challenge to obtaining the Social License in different geographical parts of the country. As referenced earlier in this report, Peru utilizes subjective and objective criteria for identifying indigenous persons, including: historical continuity, territorial connection, distinct political, cultural, economic and social institutions, self-identification, language, and communal territory. Peru’s criterion for identifying indigenous and native peoples has been criticized for81 being too limited given its inability to identify and account for all indigenous communities, their particularities, and the more integrated nature of certain communities.

78 Civil society groups in Peru also propose the introduction of Consulta Previa at the start of a concession period - As gathered from meeting with Dirk Arts and Maximo Gallo – consultants and former Rio Tinto employees on March 16, 2016. 81 Formed in 2011 by five major indigenous and peasant organizations, the Pacto de Unidad de Organizaciones Indígenas (Unity Pact of Indigenous Organizations) argues that the Consulta Previa law should include a broader definition of who is indigenous. http://americasquarterly.org/content/country-study-peru

– Recommendation– Allowing sufficient time for consultations before the concession period and during the life cycle of the extractive project

– Recommendation– Re-visit the criteria used to define indigenous communities


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The criteria for identifying and classifying indigenous communities in Peru should be modified to account for their respective particularities such as language and permanence of indigenous peoples within a particular historical national territory. A revised criteria would limit the risk of marginalizing those indigenous peoples who have both adopted the more mainstream use of the Spanish language or have been expelled from their ancestral territories and therefore may not fall within the current criteria for classifying indigenous communities.82 Indicative of the complexity of identifying indigenous communities is the difference in the identification process between the indigenous communities of the Andean and Amazonian regions. While the indigenous communities of the Amazonian regions, as a result of their visibly unique characteristics and traditional norms, clearly fit the identification criteria, the identification process is more difficult in the highland communities of the Andean region where more integration has taken place.83 Under the current criteria, said integration and adoption of the Spanish language has deprived persons of their indigenous status. The law of Consulta Previa should be employed on a case-by-case basis, particularly in the Andean region where the highland communities are more integrated within the local community.84 In its consultations, the government should therefore adopt a subjective approach that both examines historical context and accounts for the particularities of each region. A ‘one size fits all’ criteria should not be adopted as it may exclude from identification those indigenous communities living in areas impacted by project activities. The current criteria serves as a useful tool to orient the Ministry of Culture—the state entity responsible for identifying said communities—to identify indigenous communities. Nevertheless, it is important for the ministry to ensure flexibility in assessing and identifying indigenous communities so as not to undermine consultation process in a diverse indigenous landscape such as Peru. In this context a case-by-case identification approach in indigenous and native communities where indigenous and non-indigenous persons are not easily identifiable, will allow Peru to move away from an exclusionary objective standard and more towards an inclusive metric that is mindful of the diverse array of indigenous and native communities. – Parity – While Consulta Previa offers the forum within which local, state, and corporate actors can interact, it does not account for the significant power asymmetries that exist between all three actors. Generally in the consultation process, the indigenous communities are at a disadvantage as they lack the resources, knowledge, experience, expertise, and overall capacity to negotiate on an equal basis with the governmental and corporate actors. This lack of capacity results in the 82 As gathered from interview with Juan Luis Ruiz from the Institute of Legal Defense on March 14, 2016. The question of how to manage social licensing in indigenous communities poses challenges in countries, like Peru that are comprised of diverse indigenous and native peoples. The presence of indigenous communities that maintain their historical roots and others that have been more integrated into the mainstream further highlight the issues impacting these communities and governments. With the proliferation of disenfranchised communities, it is worth thinking about developing a new and more inclusive concept. 83 As gathered from meeting with Manuel Ugarte, Partner at Philippi, Prietocarrizosa, Ferrero, DU & Uria Abogados, on March 18, 2016; Meeting with Evelyn Torres, SNMPE on March 16, 2016;and Meeting at Yanacocha on March 16, 2016. 84 Meeting with Partners at Delmar Ugarte on March 18, 2016. A key part of the definition of “indigenous” is what the community itself identifies with. This is problematic with respect to the Andean regions, where the communities themselves want to integrate / call themselves peasants.


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consultation process undermining the protection the law aims to provide to indigenous persons. Thus, consultation and its outcome lack legitimacy when a decision is reached in the presence of said power imbalance between the extractive corporations and local communities. The problem is more pronounced in instances where corporate or governmental officials have (1) bribed community representatives and (2) purposefully fomented divisions within the community. The aforesaid factors including coercion and manipulation delegitimize the Consulta Previa process.

Throughout the consultation process, communities should have access to observers and assessors that aid in alleviating the impact of power asymmetries between extractive corporations and the government on one hand and the local communities on the other. Such observers and assessors may be useful in ensuring the proper execution of the Consulta Previa process without any coercion. Such assessors should be experienced in consultation processes with communities and may participate in the consultation process as civil society observers provided they act in good faith. The participation of these observers should be preconditioned on the acceptance of both parties (i.e. the state and local community) and under no circumstances should they obstruct the development of the consultation process.

In order to increase the level of parity in the consultation process the indigenous community should be able to hire independent advisers, including legal, technical, environmental and financial advisers. While the cost of such advisers should be absorbed by the mining company or the government, the advisers shall report only to the community. In this respect, it would be important to ensure that the independence of the advisers is not compromised and that there exist no coercion or undue influence that may affect their role as independent advisers to the indigenous community. – Environmental vs. Social Impact – The community informational workshops are an essential forum in which indigenous and native participants can receive information regarding the exploration activities and their possible effects. The Environmental Impact Assessment (EIA)—the process by which the anticipated environmental effects of a proposed project are measured—is indicative of the type of

– Recommendation– Incorporate the participation of observers

– Recommendation – Provide the indigenous communities with Independent Advisers


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information that is integral to the consent process. While the EIA does contain a Social Impact Assessment—a “methodology to review the social effects of infrastructure projects and other development interventions”—the social assessment appears to receive disproportionately less attention.85 In delineating the potential social effects of extractive activities, EIAs appear to lack the inclusion of those social, cultural, and spiritual dimensions of the indigenous or native communities that may be affected.86

While environmental impacts such as pollution and contamination tend to precipitate conflict, “broader social and economic issues (such as the distribution of project benefits or the quality of the company’s ongoing consultation processes) typically underlie situations of conflict.”87 In order to augment the quality of the consultation process and preempt potential conflict, the government of Peru, as well as the companies operating within its borders, should utilize NGOs, anthropologists, community liaison workers, and other experienced sectors of civil society to accurately and thoroughly map out the social impacts a particular mining project may have on the specific socio-cultural identities of indigenous and native communities.

– Implementation –Despite the benefits of Consulta Previa, the consultation process thus far has been primarily confined to oil, gas, and hydrocarbon projects. Mineral exports are a pillar of the Peruvian national economy and as many as 40 of its mining projects are located in territories occupied by indigenous people.88 Despite the importance of the mining industry in Peru, only three cases of Consulta Previa have been carried out in the mining sector, meaning that the process has gone under utilized in the sector that generates the most controversy and social conflict. – Conclusion – While Consulta Previa on its own cannot eliminate all sources of social conflict in Peru, it may nevertheless have the affect of alleviating tensions via a community consultation and engagement that could prevent social conflict. By addressing the vulnerabilities related to the identification of indigenous groups, the need to ensure power parity, and the lacking emphasis on social impact, Peru can strengthen its attempts at engaging, consulting, and listening to its local

85 See A Comprehensive Guide for Social Impact Assessment. Rep. Centre for Good Governance (2006) available at http://unpan1.un.org/intradoc/groups/public/documents/cgg/unpan026197.pdf. 86 Idea that was expanded upon in our interview with Juan Luis Ruiz from the Institute of Legal Defense on March 14, 2016. For example in the oil spill in the Amazon case, the environmental costs were considered; the social costs were not considered. 87 Rachel Davis and Daniel M. Franks. Costs of Company-Community Conflict in the Extractive Sector, Corporate Social Responsibility Initiative Report No. 66. Cambridge, MA: Harvard Kennedy School, p.8 (2014). 88 Paulo Vilca, Perú: Buscando un nuevo consenso para la consulta previa en la minería, Servicios en Comunicación Intercultural Servindi, (2013) available at https://www.servindi.org/actualidad/97318. (For alternative data regarding overlapping mining concessions on communal lands, see Pacto Unidad and Working Group of Indigenous Peoples of National Coordinator for Human Rights Perú: Informe alternativo 2013. Sobre el cumplimiento del Convenio 169 de la OIT. Lima: DAR pp. 40-41 (2013))

– Recommendation – Elevating the detailed use of Social Impact Assessments.


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communities. With time, Peru will be further able to prove that Consulta Previa and investment can coexist within its borders.

VII. CHALLENGES IN OBTAINING SOCIAL LICENSE IN PERU – Challenge 1: Absence of the State – Mining activities are generally carried out in remote regions of Peru where there is little or no presence of the government. Since the communities in such areas often lack provision of basic public facilities, they look to the incoming investors to provide those facilities ancillary to their mining activities. Thus, in such cases the companies are expected to take on the role of the government and provide basic facilities to the community. The companies accede to such expectations and characterize such costs as project development costs that must be incurred to secure social acceptance for the proposed project. For example, companies like Cerro Verde in Arequipa recognized the importance of investing in community development projects in order to gain social acceptance and has executed a developmental model that has gained its widespread social acceptance. Mining companies may also invest in infrastructure development including the construction of roads, schools, health centers or other facilities in the area impacted by the mining project. Investments may also include social development measures whereby the mining company may guarantee employment to the members of the community as an incentive to gain social acceptance for the project. In cases where companies bear additional costs and responsibility, the communities may regard the mining company as taking over the role of the State, thus leading the communities to develop heightened expectations for the mining company to fulfill. Consequently, the mismanaging of expectations can result in social conflict preempted by the discrepancy between the more permanent needs of a community and the temporary presence of a company who will depart once an extractive project is completed. Upon a company’s departure, a community may be deprived of the benefits and facilities once associated with mining activities. The following recommendation outlines the best practices that can be followed to ensure the better management of community expectations.

The examination of the mining communities of Cajamarca and Arequipa revealed two types of state absence: (1) cases where there is no presence of a local, regional, or state government and (2) cases where the government has a presence, but does not play a constructive role in liaising between the corporation and local community. The challenge of managing expectations with regards to the blurred line of a company’s provision of benefits and borderline state services was echoed by a representative from the Yanacocha mining company who explained that “the corporate social responsibility movement

– Recommendation – Triangular relationship between government, company and community.


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stands as a model for community development, not a substitute for state services with regards to water and health services.”89 Thus, the premise is not for the company to replace state services, but to be a model for community development in the overall governance and development of regions. This understanding is representative of a shift from a risk management to a rights based approach in which the indigenous communities’ right to benefit from developmental activities within their territories is recognized. Through the social licensing process, impoverished communities suffering from a history of social exclusion, lack of education, and restricted access to resources are presented with the opportunity to both have their expectations met and reap the benefits of mining development. In a majority of cases where mining corporations work in rural areas lacking the presence of a state, the provision of public infrastructure becomes a natural part of the negotiation process.90 This conclusion is consistent with the prevalent perceptions of mining companies operating in Peru. For instance, in interviews with consultants and former Rio Tinto employees it became apparent that “Companies feel alone at the beginning of the process because there is a lot of talk about public services without much help from the government.”91

The question of whether corporations, in the absence of a functioning government, should provide deprived communities with the services they would otherwise not receive introduces serious challenges for a process that seeks to balance company responsibilities and community benefits. The risk of bilateral partnerships between the extractive entity and the local community derive in part from the bypassing of the government. Once private businesses assume responsibilities for certain state functions, governments will retreat from their responsibilities and thereby diminish their credibility and authority.92 Once the company becomes visibly present in a way in which the Government has not, the company “will be under constant pressure, often violent pressure, to provide ever more services.”93

Combining social works with public works calls for a stronger relationship between the government, the corporation, and local communities. While the construction of a school or health facility is a favorable and welcome contribution, “a school building is not education, nor a clinic

89 Meeting at Yanacocha on March 16, 2016. 90 Meeting with Ms. Sonia Puntriano Mendoza, Angel Murillo, Percy Velarde Zapater – SNMPE on March 16, 2016. 91 Meeting with Dirk Arts and Maximo Gallo – consultants and former Rio Tinto employees on March 16, 2016 92 See Donal A. O'Neill, Chapter 8: Impact Assessment, Transparency, and Accountability: Three Keys to Building Sustainable Partnerships between Business and Its Stakeholders, Peace through Commerce: Responsible Corporate Citizenship and the Ideals of the United Nations Global Compact. Ed. Oliver F. Williams. Notre Dame, IN: U of Notre Dame (2008). 93 Ibid, p. 22.

Figure8-Tri-partiteRelationship.ImageCredit:DonalA.O’Neill2006.


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building health provision” unless the proper steps are undertaken to ensure the necessary staffing, maintenance, and supporting services.94 The mining sector in Peru should transition from the current bilateral business-community approach that centers on government and mining company towards a tripartite relationship that includes the indigenous communities impacted by mining activities. A tripartite relationship represents a more sustainable approach that ensures continuity, the management of community expectations, and thereby, the prevention of the escalation of social conflict.95 Under the tripartite model, companies shall work in coordination with the government to ensure continuity in efforts directed towards community development and the provision of services, especially upon the termination of extractive activities.96 Working in coordination would allow mining corporations to overcome past criticisms regarding the mismanagement of community expectations. By ensuring continuity, companies and governments can contribute to the sustainable development of mining projects and communities thereby preventing the social conflict sparked by unreliable and transient provision of services as well as the deprivation of economic benefits following the termination of mining operations. The government, corporation, and local communities can establish a sustainable tripartite relationship by allowing all parties to participate and provide input on an equal basis. Participation should be measured in terms of subjective feelings of fairness rather than the mere fulfillment of simple procedural requirements.97 A tripartite relationship based on such equity would help mitigate against feelings of dissatisfaction and exclusions that may arise in instances where there is a disconnect between the mining company and indigenous community. The following forms of input may help establish a degree of equality in the company, government, and local community partnership:98

Company -Funding: Extractive companies can provide funding to support activities or projects agreed upon with the local community.99 Contracting Extractive companies can contract in expertise or train local community members to equip them with the skills needed for different aspects of the project such as the construction or electrical wiring of a community center.100

94 Ibid, p. 15. 95 Ibid, p. 18. 96Julia Torreblanca Mamanillo, the Vice President of Corporate Affairs of Cerro Verde, took this a step further by arguing that ..,“[t]he mining companies should not take the state’s role in provision of public facilities because the people should not have to rely or take from the companies. The minerals in the land being to the state and therefore the state should act for and protect the rights of the people where the greater good is compromised.” – Meeting with Julia Torreblanca Mamanillo, VP of Corporate Affairs of Cerro Verde on March 16, 2016. 97 Donal A. O'Neill, Chapter 8: Impact Assessment, Transparency, and Accountability: Three Keys to Building Sustainable Partnerships between Business and Its Stakeholders, Peace through Commerce: Responsible Corporate Citizenship and the Ideals of the United Nations Global Compact. Ed. Oliver F. Williams. Notre Dame, IN: U of Notre Dame, p. 18. (2008). 98 Ibid, p. 18 99 Ibid,,p. 18 100 Ibid, p. 18


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-Long-term mapping: Extractive companies can establish and share an understanding of how the operations may affect the local community, such as the development of alternative sources of employment.101

Government -Expertise: The State can provide incoming mining companies with an understanding of the local culture, dynamics, and issues of local communities to incoming mining companies that lack proximity to the communities.102 -Funding: The State can provide funding to support public works that fall under the purview of government.103 Community -Labor: Local communities can contribute the labor needed at different stages of a mining project or provision of community benefits.104 -Perspective: Local community representatives can play an important role in fostering engagement between companies and the local community.105

– Challenge 2: Access and Communication – Challenges in terms of access and communication are primarily twofold: first, the physical inaccessibility as these communities are located in remote regions; and second, lack of capacity and understanding of technical, financial and other project dynamics among the members of the community. The aforesaid lack of capacity and understanding may be due to the members of the indigenous community possessing limited technical mining related knowledge, therefore rendering them unable to completely understand the project and its impacts. The inability to understand their rights and a project’s potential impact means that these communities are unable to give informed consent. In terms of access, physical inaccessibility makes reaching and consulting far off communities a major challenge, as there are no roads or highways to provide an accessible route. Impacted communities are usually located in the remote regions of the Amazonian or the Andean regions.106 Ensuring the participation of all community members in the consultation process is another challenge as community members are often dispersed within an impacted region. Without the participation of all community members, the obtained consent is not reflective of the participation and consultation of all affected community members. 101 Ibid,,p. 18 102 Ibid, p. 19. 103 Ibid, p. 19. 104 Ibid, p. 19 105 Ibid, p. 19. 106 The indigenous communities are often located in the remote regions of Peru, which (1) does not have the presence of the State (2) are difficult to reach by any means of transportation due to their remoteness (3) the settlements of the members of the community are widely dispersed in the regions. For example, there are no roads or highways to get to the indigenous communities.


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An integral part of accessing and communicating with indigenous communities affected by a mining project involves carrying out stakeholder mapping to ensure that all impacted communities are included in the consultation process. The very nature of stakeholder mapping is qualitative and the methodology employed determines the variations in the outcome. To overcome this challenge, the government and mining companies should take into account the measures highlighted below.

With regards to the government, the Ministry of Culture should take up the role of mapping and benchmarking communities’ culture and existing social patterns in various mining regions. The Ministry of Culture should define a set robust research methodology that can be used by the rest of the stakeholders in the mining sector. Although Peru does currently maintain a database on indigenous communities, for instance the Ministry of Culture published Quechua history in database,107 there needs to be a more dedicated approach to compiling a comprehensive and accurate database.

One recommendation to the aforesaid database is the incorporation of existing cultural and social patterns of indigenous communities. Such qualitative mapping of communities would require expertise from anthropologists and social scientists that could also help with mapping the indigenous communities that may have become more integrated with other communities. The resulting database would facilitate the social licensing process and provide useful information that can guide an effective social impact assessment. A systematized effort that goes beyond a census to qualitatively map communities within mining regions represents an opportunity to set up a robust way forward that can minimize the risks of marginalizing communities. This will address a major gap in the sector, where it is hard to come to a unified understanding of social impact of mining activities. Having a system on how, what and when we measure, allows the community, the government and the mining companies to be on the same page with respect to social impact.

With regards to the Mining Companies, every time a mining company carries out a project, it should carry out a mandatory stakeholder’s mapping exercise at the grass roots level. This double mapping from the government and the mining company will allow the government to compare, contrast and bench mark existing social situation.

This will help the government and the mining companies to have a consensus on the existing situation and the expected social impacts of mining. By making the formal understanding of the cultural and social patterns of existing communities available to the mining companies, the

107See Hillary Ojeda, Ministry of Culture publishes Quechua History in Database, Peru This Week (2016) available at http://www.peruthisweek.com/news-ministry-of-culture-publishes-quechua-history-in-database-106799.

– Recommendation – Stakeholder Mapping of Communities


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government shall provide the mining companies an opportunity to compare, quantify and therefore mitigate their social impact in a agreed upon, measurable way.

With these agreed upon data points and a consensus on set goals on mitigating social impact, the mining companies should be able to propose timely mitigation strategies to the government and will have an improved ability to come up with robust strategies to engage communities and find creative and acceptable ways to obtain and maintain a Social License.

– Challenge 3: The Heavy Burden Placed on Community Liaison Workers –Appointed to survey and address the concerns of local communities within the geographical scope of an extractive company’s operations, the community liaison workers play an important role in carrying out the sort of social mapping that helps a company gage the sentiments of a local community. Due to a host of factors including lower literacy levels and the lack of community resources, community relations staff utilized to represent the mining corporations emerge as the individuals with the responsibility of articulating the concerns of entire communities during the consultation process with the government and the mining company. In such cases, an immense responsibility is placed on the community representatives that are required to understand all technical details of the project and present them to the rest of the community. Furthermore, the onus of managing community expectations during negotiations between the mining company, government, and local communities, including those discussions regarding community development, employment, health, and education also lies with such community workers.

In order to effectively manage community expectations and give local community members the opportunity to contribute to the formulation of a particular project’s risk portrait, companies should consider “front-loading”108 their investment in community relations. A small or medium-size company may face financial limitations that may result in focus on remediation strategies to address social impacts after conflict has erupted rather than investing in preemptive measures for community development and relations. The disadvantage of this approach stems from the fact that trying to foster good relations with local communities later on in a project lifecycle, particularly after social conflict arises, tends to be more expensive and “almost never lead to sustainable relationships.”109 In addition to hiring capable and committed community-relations staff skilled in building the community relations needed to prevent and mitigate conflict, companies should also dedicate financial and behavioral capital to empower community workers. When a social license is based

108 Rachel Davis and Daniel M. Franks. Costs of Company-Community Conflict in the Extractive Sector, Corporate Social Responsibility Initiative Report No. 66. Cambridge, MA: Harvard Kennedy School, p. 25 (2014) 109 Ibid, p. 10.

– Recommendation – Creating and Empowering the Community Liaison Workers


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on trust, behavior, promises, and timely follow-through—often times the activities delegated to community workers—are integral to sustaining the social consent.110 A former social management official of a mining company operating in Peru highlighted the stark difference between social management and the scientific processes behind engineering, arguing that social management, instead of following particular formulas, is more “dynamic, subjective, and in need of flexible and sincere people.”111 By failing to follow through on company commitments made to communities via the community workers, a company can undermine the work and credibility of a liaison worker with the local community. Given the benefit of having community workers integrated within the community, especially in their ability to detect concerns before they escalate into social conflict, companies should work to empower, rather than discredit, the work of these individuals.112 While community liaison workers play an important role in gaging the sentiments of communities within the sphere of a project’s operations, their attempts at building a positive relationship between the mining companies and the communities may be undermined in the absence of company processes that back up said engagement. Without internal company processes that take the insights of the community liaison workers and meaningfully incorporate them into the internal decision making process, the mining company may end up delegating the task of relationship building to liaison workers and thus failing to acknowledge the communities’ social and economic concerns in a timely manner. By empowering the community liaison workers and institutionalizing company structures—such as the involvement of top-level management—for making decisions on how to prevent or manage social issues, companies can strengthen their community engagement and social management activities. While companies are looked to utilize such workers, the government has an important role in facilitating their creation. In launching an initiative to create and fund social management programs at universities within Peru, the government can help equip its populations with the tools and skills to become efficient and responsible social managers and liaisons.113 – Challenge 5: The Equitable Distribution of Benefits –Managing expectations of different entities (government, mining company, and the communities) is a challenge in any large-scale extractive industry project. Furthermore, in the process of gaining the Social License, equal distribution of benefits across all impacted community members is challenging when such communities are disbursed, not part of the participatory process and thus excluded from benefits as well. A Harvard Kennedy School (HKS) Corporate Social Responsibility Initiative seeking to better identify and account for the costs of social conflicts, identified distribution of benefits as a 110 Interview with IFC personnel in Peru on March 18, 2016. 111 As gathered from interview with confidential source c on March 15, 2016. 112 Meeting with Julia Torreblanca Mamanillo, VP of Corporate Affairs of Cerro Verde on March 16, 2016Explanation provided as to how the community liaison worker working with community members would give her a heads up to conflict before it erupts. Having a PR team in the community that enables the community members to lodge complaints and grievances was felt to be an effective mechanism. 113 In a meeting at Yanacocha on March 16, 2016, the interview argued that while professors, doctors, sociologists, and lawyers are not the professions capable of addressing social responsibility concerns, the job of community engagement requires training and certain skills that not everyone possesses.


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contributing factor in nearly 70% of company-community conflicts.114 Designing compensation measures, particularly in the presence of projects expanding a large terrain, is therefore of great importance vis-à-vis communities that are interested in witnessing social and economic development.

In this respect the mining companies, along with the assistance of the government of Peru, should take measures to adopt a “hub” approach for distributing benefits rather than on the current basis of spheres of influence. The current spheres of influence system distributes benefits in a more concentrated manner to those communities immediately in the vicinity (or “sphere of influence”) of the extractive project. However, as the experience of anti-Conga protests in Cajamarca has shown, often times the social conflict is sparked by individuals outside of this immediate sphere of influence. Moving towards a network of hubs that are dispersed throughout the geographic terrain of a project would allow companies to broaden the distribution of benefits that is often the underlying cause of social conflict. – Determining the Hub Network of Equitable Distribution –Under the Hub Network of Equitable Distribution, hubs would represent the connection point for the allocation of benefits within the broader network of communities that fall under the traditional spheres of influence. Each hub would therefore contain connections to multiple geographically distant communities, allowing the companies to move away from a concentric model of distribution. Hubs should be determined based on criteria that assesses, but is not limited to, the following factors:

- Distance: Taking into account the distance between the center of mining operations, the locale under consideration to become a hub, and the nearby communities is an important step in the efforts to maximize the reach of each hub.

- Area of operations: Communities whose resources are utilized to sustain the operations of

the extractive corporation should be considered as possible hub candidates. For instance, the frequency of contact between a community and the corporation that utilizes that community’s water resources represents a connection between the two parties that would constitute grounds for hub candidacy.

In developing the “hub” approach, mining companies should work with (1) regional governments for assistance in mapping out the zones of mining and agricultural impact, (2)

114 Rachel Davis and Daniel M. Franks. Costs of Company-Community Conflict in the Extractive Sector, Corporate Social Responsibility Initiative Report No. 66. Cambridge, MA: Harvard Kennedy School, p. 17 (2014).

– Recommendation – The Hub Network of Equitable Distribution


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anthropologists who, in their analysis of the local networks of association, can best provide the informational, social, and cultural context that informs the zoning process and (3) communities whose input should be sought during the zoning process. Adopting a Hub Network of Equitable Distribution mitigates against the current concentric sphere of influence distribution that risks reinforcing socioeconomic differences and fracturing support for the mining project. – Challenge 6: Consensus and Intergovernmental Coordination – The lack of intergovernmental coordination primarily arises due to the shortage of government capacity in the local, regional and national governments. Indicative of this gap is the fact that the regional government of Arequipa employs only about eight personnel to approve the hundreds of environmental impact assessments that are being submitted to them in a year. This shortage of government capacity to assess the submitted EIAs leads to an estimated approval time of over one year per EIA. Furthermore, this lack of government capacity is often times one of the reasons for the communication delays between the local, regional and national government entities. As a matter of fact, given the huge presence of mining in the country, lesser the number of government authorities working on such aspects, greater is the inefficiency in the process. Therefore, to address this challenge of consensus and intergovernmental coordination, the government should invest in human capital in terms of recruiting more staff and providing training to work on aspects in the mining sector. – Challenge 7: Less emphasis on Social Impact Assessment in comparison to Environmental Impact Assessment–According to the International Association for Impact Assessments, the aim of conducting a Social Impact Assessment (“SIA”) is to empower the local communities and thereby all business operations without any social conflicts or community tensions. In Peru, the SIAs are conducted as a component of the EIA rather than as an independent or stand alone assessment. On average, a mining project cycle incorporates about two EIAs: one during the exploration phase and the other before the production phase. However, in both of these phases, the SIA is only a component of the EIA and is not given the weightage equivalent of the environmental impacts. One reason for the reduced emphasis on the SIA is due to the fact that there are more legal requirements for assessing the environmental impacts of mining projects. As a result, mining companies are not legally required to assess social impacts of project. The neglect of such social impacts in absence of mitigating measures results in social conflicts and may present challenges to obtaining a Social License.115 An important aspect of SIA is to ensure the sustainability of mining ecosystems116 in impacted communities. In this respect both the government and mining company must work together to ensure sustainability from mining operations. Rather than focus on short-term profitability, the government and mining company should

115 See supra section titled “Challenges in the Implementation of Consulta Previa in Peru.” 116 This term is inspired from the startup ecosystem model implemented in the silicon value. An ecosystem is formed by businesses and people in their various stages of existence interacting as a coordinated system to grow the whole region’s economy. http://www.startupcommons.org/what-is-startup-ecosystem.html.


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proceed with project development with a long-term outlook. Efforts should be directed at developing mining regions into sustainable economic ecosystems that derive income from sources other than mining. In this respect, the government should design policies that facilitate the development of a varied and comprehensive economic base encompassing economic activities beyond those related to mining. In mining regions, such broad economies can help mitigate against the negative consequences that the fluctuation in commodity prices, such as copper and gold, can have on the benefits derived from extractive activities. Through its policies, the government can encourage mining companies to invest in the ‘economic ecosystem’ of the areas they operate in. An ecosystem is formed by businesses and people interacting in various stages of a coordinated system that grows the whole region’s economy.117 If the government releases its requests for mining proposals with the intention to develop the mining region’s economy, it can simultaneously explore the potential of engaging investors in developing other sustainable micro economies based on multiple-integrated approaches. This means setting up industries such as tourism, agriculture, handicrafts, and the manufacturing of goods alongside mining activities. Such an approach will result in more sustainable local economies that have the potential to both survive global shocks affecting the mining industry and continue to benefit the local community after mining operations have come to an end.

Mining companies should be incentivized to take such measures as they result in job creation, which in turn may prevent the social conflict that tends to arise when job availability decreases throughout different stages of a mining project’s life cycle. For example, following the construction phase there are usually fewer job opportunities for local community members—a reality that may create tensions within the community. Therefore, an ecosystem’s provision of alternate non-mining related job opportunities can help manage community expectations and dispel tensions that may result in social conflict.

Exhibit 2 of this report examines SIA in further detail in addition to highlighting how it can strengthen the social licensing process.

117 Ibid.


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II. Anti-Corruption Efforts in Peru and the Mining Sector


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ANTI-CORRUPTION EFFORTS IN PERU AND THE MINING SECTOR

I. ANTI-CORRUPTION LAW AND EFFORTS “…everything is based on (self-)interest, those who have can and the poor die.” - Juan de Aponte118

This lament by a public official in the service of the Spanish crown in colonial Peru continues to ring true to this day. Appropriately, this was an observation made in 1622 in the course of describing, amongst other things, the damage caused to the colonial economy by the corrupt administration of the Huancavelica mercury mines.119 Corruption in the extractive industries in Peru, though identified as a concern quite early on, literally hundreds of years ago, has exhibited surprising resilience in surviving attempts to weed it out. The phenomenon of corruption has played significant part in the shaping of the Peruvian polity peaking under the rule of Alberto Fujimori who was President from 1990 to 2000. However, Peru presents an encouraging study for the proponents of the rule of law with perpetrators of grand corruption in recent years, Alberto Fujimori and his aide, Vladimiro Montesinos, being held accountable for their crimes under Peruvian law and by the national systems.120 Learning from the preceding decade, the political establishment and the general public have become highly sensitized to the issue of corruption since 2000.121 This increased awareness and urgency to tackle corruption is evident in the number of legislations and transparency efforts conducted by successive administrations in the last decade and a half. The resolve and actions taken by Peru have received international recognition with the country being internationally recognized as a compliant country by the Extractive Industries Transparency Initiative (EITI)122 in 2012.123 More recently, specific recognition of the progress Peru has made in addressing corruption was acknowledged by Mechanism for the Implementation of the Inter-American Convention against Corruption (MESICIC) of the Organization of American States (OAS).124

118 Part of a larger observation “No son señor Buenos deseos solos, sino también obras que en su Real Servicio he tenido, hambiéndolo servido diez años últimamente en aquella mar del sur de oficial de Guerra en la Real Capitana Jesús María, donde me retiré sin ningún premio, viendo la poca remuneración de que gozan los que sirven a V.C.M., que en aquel Reyno premianse mal Buenos serivicios, proque todo corre fundando en inters, y los que tienen pueden y los pobres mueren.” Juan de Aponte, Representacíon, Guamanga, p. 145 (1622) as published in Coleccíon de documentos inéditos para la historia de España (Madrid: Real Academia de la Historia), 51: p. 521-62 (1867) and cited by Alfonso W. Quiroz, Corrupt Circles: A History of Unbound Graft in Peru, p. 39 at fn. ( 2008) [hereinafter “Corrupt Circles”]. 119 These mines were the sole source of mercury in America, an important component for extraction of silver that was an essential for the silver-based imperial economy. See Ibid, 44. 120 See Jo-Marie Burt, Guilty as Charged: The Trial of Former Peruvian President Alberto Fujimori for Human Rights Violations, 3 International Jnl of Transitional Justice, pp. 384–405 (2009) available http://ijtj.oxfordjournals.org/content/3/3/384.full#xref-fn-8-1. 121 Bertelsmann Stiftung, BTI 2016 — Peru Country Report. Gütersloh: Bertelsmann Stiftung, p. 11 (2016) available at https://www.bti-project.org/fileadmin/files/BTI/Downloads/Reports/2016/pdf/BTI_2016_Peru.pdf 122 EITI compliance requires that countries disclose information on benefits and payments made by companies operating in the Extractive Industries and these are reconciled against the revenues actually received by the State. For an understanding of on the more recent standards to be adhered to by EITI Compliant Countries, please refer to The EITI Standard 2016 available at https://eiti.org/files/english_eiti_standard_0.pdf 123 See EITI declaration available at https://eiti.org/news-events/peru-and-mauritania-declared-eiti-compliant. 124 OAS recognizes Peru’s progress in fight against Corruption, (2016) available at http://www.andina.com.pe/ingles/noticia-oas-recognizes-peru’s-progress-in-fight-against-corruption-604318.aspx


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However, legislative actions are yet to show adequate results, with Peru falling slightly in rank from 85 in 2014 to 88 in 2015 out of the 168 countries on Transparency International’125 Corruption Perception Index.126 This chapter looks at the systems in place in Peru to tackle the issue of corruption in the mining industry, identifying the issues in their implementation that create a disconnect between the intent of the stakeholders and actual situations that facilitate corruption, and makes some recommendations.

125 José Carlos Ugaz from Peru, whose office ad-hoc State Attorney Office was primarily responsible for investigation of the Fujimori-Montesinos affair and related persons in 2000-2002, is currently the Chair of Transparency International since 2014. 126 See https://www.transparency.org/cpi2015/#map-container

Figure 9: (2013 survey by Transparency International - https://www.transparency.org/gcb2013/country/?country=peru )


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Corruption in Extractive industries is not only Peru’s Problem

The Extractive industry seems particularly susceptible to corruption the world over.

Figure 10: Source: OECD Foreign Bribery Report 2014 available at http://www.oecd-ilibrary.org/docserver/download/2814011e.pdf?expires=1460682678&id=id&accname=guest&che

cksum=337F5C3A0BA927E944AC46266FC3217F

Recognizing this vulnerability, there have been several International and national initiatives taken to address corruption in this sector.

At the international level, there is the Extractive Industries Transparency Initiative (EITI), of which

Peru is a member. Countries who are part of it have to regularly information on tax payments, licenses, contracts, production and other key payments by companies operating in the resource extraction sector. For instance, Peru’s report to the EITI is available (in Spanish) at https://eiti.org/files/Peru-2013-EITI-

Report.pdf. At the national level, some countries have passed laws that specifically target corruption in the

extractive industries. For instance Canada passed the Extractive Sector Transparency Measures Act that came into effect on June 1, 2015, where companies would have to disclose foreign and domestic

payments made to government at all levels. A similar rule has been proposed in the US by the capital Markets regulator (the US Securities And Exchange Commission) as mandated by the Dodd-Frank

Wall Street Reform and Consumer Protection Act in December 2015. As in Canada, this would require all companies whose securities are listed on the stock exchanges in the US (termed “issuers”) to

disclose all payments made in the US and outside of the US to all levels of the government. These sector specific rules are intended to compliment existing anti-corruption statutes such as the Corruption

of Public Officials Act in Canada and the US Foreign Corrupt Practices Act that punish overseas bribery.


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II. LEGAL FRAMEWORK FOR ANTI-CORRUPTION LAWS OF PERU – Peru’s International Obligations and their Influence on Domestic Laws on Anti-corruption – Peru has been active in several international efforts to curb corruption. For instance, it was the first South American country to ratify and approve the United Nations Convention against Corruption (“UNCAC”).127 It had already signed and ratified the Inter-American Convention against Corruption (IACAC) in 1997.128 In addition Peru signed the US-Peru Trade Promotion Agreement (“PTPA”) in 2009, which required Peru to meet certain standards in terms of anti-corruption laws.129 Peru is yet to be accepted as a member of the OECD Convention on Combating Bribery of Foreign Public Officials, though the OECD and Peru are in advance stages for review for Peru’s acceptance as a full member through the OECD Country Programme.130 These international conventions are especially significant, as they require Peru to align its domestic laws to the world standards that they prescribe. Subjecting itself to these international obligations has influenced the development of the national anti-corruption laws of Peru in the last decade. For instance, Peru has adopted the National Plan to Combat Corruption131 pursuant to Article 5 of the UNCAC, which provides guidance and prioritizes specific areas for remedial actions. Another notable example is Law No. 29316 passed in 2009, which introduced Article 397A into the Criminal Code criminalizing ‘transnational active bribery’ in compliance with the provisions of the PTPA.132 These international mechanisms provide that Peru’s national systems are subject to regular assessments to ensure that that progress is monitored and evaluated on an ongoing basis.133

127 Signed the UNCAC on December 10, 2003 and ratified it by Decreto Supremo no, 075-2004-RE on 19 October 2004. See Marcela Huaita, UN Convention Against Corruption Civil Society Review: Peru 2011, Proética, National Council for Public Ethics (2011) available at http://uncaccoalition.org/files/cso-review-reports/year1-peru-report.pdf 128 Singed the convention on March 29, 1996 and ratified it on April 4, 1997 as per details provided in http://www.oas.org/juridico/english/per.htm 129 This entered into force on February 1, 2009. 130 See The OECD and Latin America and the Caribbean http://www.oecd.org/latin-america/countries/peru/ . Regarding the challenges of Peru attaining full membership within the OECD, refer Peru 2021: OECD Member Country, Centro Nacional de Planeamiento Estratégico (2015) available at http://www.ceplan.gob.pe/sites/default/files/Documentos/peru_2021_-_pais_ocde-_ingles_10-02-2015_final.pdf. 131 First issued for the period between 2008-2011 and then succeed by the National Plan to Combat Corruption (Plan Nacional de Lucha Contra la Corrupción) 2012-2016 adopted by Supreme Decree No. 119-2012-PCM available at http://can.pcm.gob.pe/category/plan-nacional-2012-2016/ 132 2015-1 GTDT: Anti-Corruption Peru, Sandra Orihuel, Orihuela Abogados, (LexisNexis). 133 For instance, the review mechanism for the UNCAC may be found at https://www.unodc.org/documents/treaties/UNCAC/Publications/ReviewMechanism-

What is corruption? Given the broad spectrum of activities that the concept covers, it is rare to see national legislations taking on the challenge to define the term ‘corruption’. Peru’s National Plan to Combat Corruption (2012-2016) made it one of its objectives to provide an ‘operational definition’ of corruption in order to contextualize the reforms the plan was to suggest. After some detailed review of definitions provided elsewhere including those provided by international institutions as well as academics, it adopted the following definition of ‘Corruption’: “Misuse of power to obtain an irregular benefit, economic or non-economic nature, through the violation of a duty to comply, to the detriment of the legitimacy of the authority and the fundamental rights of the person.” It is relevant to note that this definition has not been adopted by any binding law in Peru. However, this provides an indication of what the legislature views this phenomenon to be while passing legislations in this area.


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– National Legislative Framework for Anti-corruption –The most relevant law in Peru addressing the various components of corruption in Peru is the Peruvian Criminal Code (“Criminal Code”).134 This legislation criminalizes various acts that constitute corruption by public officials, viz.: Bribery of Public officials (Cohecho): The Criminal Code covers both ‘active’, as well as, ‘passive’ bribery.135 ‘Active’ bribery is the act of offering, giving or promising to a public official a donation, promise, benefit or advantage, to persuade her to perform or omit acts in violation of her obligations, or without violating them.136 ‘Passive’ bribery is the act of requesting, accepting or receiving donations, promises or any type of advantages performed by a public official, to carry out or omit an act in violation of her obligations, or without violating her obligations.137 This is punishable with imprisonment for 5-15 years for the public officer who accepts the bribe and 4-6 years for persons providing it.138 Influence peddling (tráfico de influencias): The code specifically criminalizes the act of any person who receives or gives to a third person a gift, promise or any advantage for the purpose of exerting influence over a public official in the performance of her official duty.139 This is punishable with imprisonment between 2-4 years. Illicit Enrichment (Enriquecimiento Ilícito): If a public official is illegally enriched by virtue of her office, it shall be punishable by imprisonment between five and fifteen years.140 There are additional laws that require public officials to declare their income and assets.141 Embezzlement (Malversacíon): The Criminal Code states that it is an offence for a public official to appropriate or use in any form, for herself or for another, assets whose administration or custody was committed to her by reason of her office.142 This offence is punishable with imprisonment for a period between two and eight years. Further, it is also an offence if money or property given in a way different or to a different destination from that to which they are intended when such was entrusted to the public servant.143 This is punishable with imprisonment for a term ranging between one to four years. However, in both circumstances it is an aggravated offence if the assets, money or property that is misappropriated or misused was provided for a social support program, development or welfare.144 The definition of a ‘public official’ has been set forth in Article 425 of the Criminal Code, and it includes any employees of state-owned companies and person who performs a function in the name of the state.145

BasicDocuments/Mechanism_for_the_Review_of_Implementation_-_Basic_Documents_-_E.pdf; for the monitoring mechanism of the IACAC, which is specifically referred to as MESICIC see to http://www.oas.org/juridico/english/mesicic_intro_en.htm. These websites also provide Peru-specific evaluations and recommendations. 134 Legislation Decree No. 635. 135 Articles 393-398 of the Peruvian Criminal Code. 136 Global Overview of Anti-Bribery Laws 2015, Baker &McKenzie, Ed. Rafael Jiménez-Gusi, p. 495 (2015). 137 Ibid. 138 Anticorruption Laws – Peru, Legallink 2013 available at http://www.legalink.ch/Root/Sites/legalink/Resources/Questionnaires/Anticorruption-Laws/South-America/Peru_Anticorruption%20Laws_LEGALINK2013.pdf 139 Article 400 of the Criminal Code. 140 Article 401 of the Criminal Code. 141 Law Regulating the Publication of Sworn Declarations of Income, Assets, and Revenue by State Officials and Civil Servants – Law No. 27482 of June 14, 2001. 142 Article 387 of the Criminal Code. 143 Article 389 of the Criminal Code. 144 Articles 387 and 389 of the Criminal Code. 145 Global Overview of Anti-Bribery Laws 2015, Baker &McKenzie, Ed. Rafael Jiménez-Gusi, p. 495 (2015).


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As mentioned before, the Criminal Code has been amended to include the crime of bribing ‘foreign public officials’.146 While the Criminal Code does not define ‘foreign public officials’, the meaning of the term can be imputed from Article 19.10 of the PTPA, which precipitated this inclusion within the Criminal Code.147 These anti-corruption provisions have been subject to regular review by international agencies such as UN and the OAS in accordance with the international obligations that Peru has signed. While largely found to be adequate, a concern that has been raised with respect to the main provisions of the Criminal Code (Articles 393 – 398) is that it does not address benefits or advantages being solicited by or provided to a third party other than the public official in lieu of an act or forbearance by the public official or to influence the public official.148 It is recommended that the law take into account that bribery could be routed through benefits being provided to persons other than the public officials. There is also the additional deficiency of the law not providing for redress of wrongdoings by corporations [See Box].

146 Article 397A of the Criminal Code. 147 Article 19.10 of the PTPA defines a ‘foreign official’ as “… any person holding a legislative, administrative, or judicial office of a foreign country, at any level of government, whether appointed or elected; any person exercising a public function for a foreign country at any level of government, including for a public agency or public enterprise; and any official or agent of a public international organization.” The term ‘public function’ means “…any temporary or permanent, paid or honorary activity, performed by a natural person in the name of a Party or in the service of a Party, such as procurement, at the central level of government.” 148 For instance, see Section 3.1 Peru Report submitted by the Mechanism for Follow-up on the Implementation of the Inter-American Convention Against Corruption, dated March 11, 2016 available at http://www.oas.org/juridico/PDFs/mesicic5_per_final_en.pdf.

Public Perception of the State Institutions in Peru

Figure 11: (Data as of 2013 – Transparency International available at https://www.transparency.org/gcb2013/country/?country=peru)


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III. THERE IS THE LAW - WHERE IS THE ENFORCEMENT? While the black-letter laws on anti-bribery in Peru seem to be adequate, they do not seem to be enforced sufficiently. Institutions that enforce these anti-corruption laws such as the judiciary and the police are also affected by corruption, therefore jeopardizing the implementation of these laws.

The Need for Corporate Criminal Liability Independent reviews of the legislative framework in Peru have found the country to be largely compliant with the standards provided in the UNCAC (See UN Convention Against Corruption Civil Society Review: Peru 2011, 2 available at http://uncaccoalition.org/files/cso-review-reports/year1-peru-report.pdf.) However, reviews have also highlighted a glaring deficiency – Peru lacks effective legislation to deter and sanction the commission of crimes by corporate entities. Presently, criminal liability is only applicable to individuals. Certain actions can be taken against corporate entities that may have been used in furtherance of or to conceal a crime such as: -Temporary or permanent closing of the company’s premises or establishments; - Dissolution of the entity; - Suspension of activities for a period lesser than two years; - Prohibition on carrying on certain activities. However, these are ancillary measures that require the finding of criminal guilt of natural person(s) who may be involved. Further, there is no provision for carrying on simultaneous criminal and administrative actions against corporates. This legislative inadequacy has been sighted as one of the major reasons for Peru not being qualified to join the OECD Anti-Bribery Convention (See Carlos Ayres, Will Peru join the OECD Bribery Convention? available at http://fcpamericas.com/english/fcpa/peru-join-oecd-anti-bribery-convention/). There are presently laws bills being discussed by the Peruvian Parliament on creating Corporate Criminal Liability such as Legislative Bill No. 4054/2013 – PE, which proposes a new regulation of liability for legal entities committing corporate crimes; and Legislative Bill No. 3491/2013-CR which establishes penalties for legal entities (Global Overview of Anti-Bribery Laws 2015, Baker &McKenzie, Ed. Rafael Jiménez-Gusi, 497). It is essential that the law, when implemented atleast provide for the following:

. Allow for parallel proceedings against responsible individuals and legal entities;

. Actions against legal entities must not be allowed to fail solely on account not being able to hold natural persons criminally liable;

. Clearly specify the manner of ascribing corporate culpability and not restrict such ascription to high-ranking officers of the Company;

. Incentivize companies to implement compliance programs;

. Allow for plea bargaining / corporate leniency mechanisms to illicit self-reporting as well as cooperation in investigations.


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IV. CONFLICTS OF INTEREST: In addition to the Criminal Code, there are various regulations that regulate the terms of service of government servants149 and employees of state enterprises.150 Specifically in the context of conflicts of interest, there are restrictions on the commercial activities that these government officials can perform.151 Certain public officials have restrictions with respect to exercising functions with private entities operating in their area of public duties such as:152 - Prohibition in providing services to them in any form; - Accepting remunerated representative positions; - Holding board positions; - Acquiring shares or participations directly or indirectly; - Executing civil or commercial agreements; and - Acting as attorneys, representatives, advisors, sponsors, experts or arbitrators in ongoing

processes with the same state organ to which they provide services while holding their official positions.

The prohibitions continue to apply for one year after termination or completion of their services under any contractual arrangement, whether by resignation, cessation, removal, dismissal, expiration or termination of their contracts with the government entity.153 Peru also has laws that prohibit nepotism where public officials are barred from exerting influence in the hiring of related persons154 in the public sector.155 As with the Criminal Code, the anti-nepotism and conflict of interest laws are adequate on paper, but are not enforced. This non-enforcement is a major contributing factor to the problem of ‘la puerta giratoria’ or the ‘revolving door’ in Peru, where there is a significant movement of personnel between the public and private sector with inadequate screening for conflict of interest. The cooling off period from public sector to the private sector is rarely enforced, and the law does not provide for any screening process while bringing in personnel from the private sector into the public sector.

149 For instance, the Law of Ethics Code in the Public Function – Law No. 27815; the Law of Civil Service – Law No. 30057, and its complimentary norm, the Supreme Decree No. 040-2014-PCM. Global Overview of Anti-Bribery Laws 2015, Baker &McKenzie, Ed. Rafael Jiménez-Gusi, p. 495 (2015). 150 Supreme Decree that defines and establishes the national mandatory policies for state entities – Supreme Decree No. 027-2007-PCM. Ibid. 151 Law No. 27588. 152 2015-1 GTDT: Anti-Corruption Peru, Sandra Orihuel, Orihuela Abogados, (LexisNexis) p.6 (2015). 153 Ibid. 154 Defined as those within fourth degree by blood and second degree by marriage, preface to Law No. 26671, Infra. Note 35. 155 Act establishing Prohibition on exercising power of appointment and recruitment in the Public Sector - Law No. 26671 of 1997 along with Supreme Decree No. 21-2000-PCM


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– Lobbying – Related to the issue of ‘revolving doors’, another law relevant within the conflict of interest debate is the law governing lobbying. Peru was the first country in Latin America156 to have a specific law regulating the activities of lobbyists.157 Anyone, including domestic or foreign individuals and companies, engaging in the activity of ‘interest management’158 have to be registered with the government.159 This law prohibits the receipt of any ‘generosity’ by a public

official from such lobbyists or their representatives. It is relevant to note that the term ‘generosity’ includes the non-156 Luiz Alberto dos Santos and Paula Mauricio Teixeira da Costa, The Contribution of Lobby Regulation Initiatives in addressing Political Corruption in Latin America, Journal of Public Affairs (2012), 438 available at http://www.politicalcauseadvocacy.com/wp-content/uploads/2012/12/Lobby-Regulation-in-Latin-America.pdf 157 Law on Interests Management in Public Administration - Law No. 28024, and its complementary norm approved by Supreme Decree No. 099-2003-PCM. 158 The euphemism for lobbying, which includes oral or written communications to public officials regarding a public decision. Luiz Alberto dos Santos and Paula Mauricio Teixeira da Costa, The Contribution of Lobby Regulation Initiatives in addressing Political Corruption in Latin America, Journal of Public Affairs (2012), 438 available at http://www.politicalcauseadvocacy.com/wp-content/uploads/2012/12/Lobby-Regulation-in-Latin-America.pdf. 159 Specifically in the ‘public registry of interest management’ maintained by the National Superintendency of Public Registers (SUNARP).

Locking the revolving Door – The Singapore Way The term ‘Revolving Door’ refers to the movement of individuals between positions of public office and jobs in the same sector in the private or voluntary sector, in either direction (https://www.transparency.org/glossary/term/revolving_door). While this phenomenon itself is not an issue, it presents a clear integrity risk to the performance public duties, both during the tenure of the servant (for instance through conflict of interest situations) or after service (exertion of undue influence through lobbying activities). Peru is not alone in grappling with the issue of revolving door. Even countries like the US have been trying to address this issue. (For instance http://fortune.com/2014/12/09/goldman-sachs-pay-revolving-door/) A country that seems particularly cognizant of the issue of revolving doors and which has taken concrete steps to address the issue of revolving doors is Singapore (See the Speech by Singapore’s Deputy Prime Minister How to reduce risk of 'revolving door' politics, May 30, 2014 available at http://news.pap.org.sg/news-and-commentaries/news-reports/how-reduce-risk-revolving-door-politics). While its polity and size is a far less complex that that of Peru, a defining factor of its civil service is the compensation and the prestige attached to the services. Ministers and civil servants in Singapore are paid salaries that are competitive with the private sector, making them one of the highest in the world. Efforts are also taken to ensure civil servants are highly qualified at the time of entry and are subject to regular appraisals during their tenure, and are subject to cooling-off periods before entry into the private sector. The prestige attached with being a civil servant is consequently quite high. Further, they are provided with security of tenure so long are their performance is within the metrics, and to a large extent, is divorced of political interference. Thus, Singapore has been able, to a great extent, achieve what it set out to do – to retain its ‘best and the brightest’ as part of a public administration that is seen by many as one of the cleanest in the world.

Entirely13%

Largeextent29%Somewha

t39%

Limitedextent14%

Notatall5%

TOWHATEXTENTISTHEGOVERNMENTRUNBYAFEWBIGENTITIESACTINGINTHEIROWNBEST…

Figure 12: 2013 survey by Transparency International - https://www.transparency.org/gcb2013/country/?country=peru


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performance of any obligation that benefits the public official or her relatives.160 However, certain actions would not constitute generosity such as:161

- legal contributions in favor of electoral campaigns, pursuant to applicable legislations; - donations and bequests to governmental entities; - informational material such as books, magazines, documents, etc.; - training, including transport, lodging, meals, duly supported and approved by the public

institution; - recognition or awards in contests or events open to the public, as well as articles only of

commemorative value;

- samples of a nominal value distributed for informational purposes; and - other materials as may be determined by law.

It is relevant to note that while there is no de minimis amounts or value prescribed under the Criminal Code, one can perhaps make an argument that activities falling outside of the term ‘generosity’ would not constitute a bribe unless it can be shown specifically that provision of such an article had a direct impact on an improper action by the public official. – Right to Information Laws – As is befitting a right of this stature, the Constitution of Peru expressly grants every individual the right to “…to request without being required to show cause and to receive from any public entity any information that is required, within the time legally specified and at cost.”162 The constitution sets the limits of this right excluding “…information affecting personal privacy and [information] that [is] expressly excluded by law for reasons of national security.”163

160 2015-1 GTDT: Anti-Corruption Peru, Sandra Orihuel, Orihuela Abogados, (LexisNexis) p.6 (2015). 161 Ibid. 162 Article 2(5) of the constitution of the Republic of Peru, 1993. 163 Ibid.

Lobby Law - too good for its own good! The lobbying law in Peru, apart from being one of the earliest in the region, is considered one of the most comprehensive in South America*. Apart from having to be registered as lobbyists and provide half yearly reports, individuals and entities have to document meetings with officials in a

written report with an affidavit. However, as of April 2015 there were only 5 individuals and 1 entity registered with SUNARP!

This is despite the popular ‘#cornejoleaks’ in 2014, where the leaked personal emails of René Cornejo which showed the activities of a private entity trying to influence governmental actions in the Ministry of Environment and the Ministry of Energy and Mines. These mails indicate that there

were ‘lobbyists’ involved who were not registered. Yet there has been no action or enforcement against these individuals.

The reason for this law being perceived as a failure is attributed in part due to its comprehensiveness and broad reach. Many within the government and in private organizations

state that while lobbying occurs in the course of normal business, it is not possible to comply with the law without exposing the contents of confidential communications or inviting allegations of

influence peddling. * See Luiz Alberto dos Santos and Paulo Mauricio Teixeira da Costa, The contribution of lobby regulation initiatives in

addressing political corruption in Latin America, Journal of Public Affairs (2012), available at http://www.politicalcauseadvocacy.com/wp-content/uploads/2012/12/Lobby-Regulation-in-Latin-America.pdf.


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Drawing on this, Peru enacted the Law of Transparency and Access to Public information in 2003 (“Transparency Act”)164 Unless specifically excluded by the Transparency Act,165 all information owned by the state is deemed to be public.166 Article 5 of the Transparency Act requires all government departments to the following details on their respective websites:167

- General information including organizational structure and the rules and regulations governing the conduct by that entity;

- Budget information including executed budgets, investment projects, designated salaries and benefits due to personnel;

- Acquisition of goods and services providing details such as the amounts involved, the suppliers, the quantity and quality of the goods and services that were acquired;

- Official activities of the high-ranking officials (understood as directors of that branch and the officials that rank below them);

- Other information as the department may deem appropriate.

Further, as per Article 7 of the Transparency Act, every individual has the right to request168 and receive information from any branch of Public Administration.169 State-owned enterprises170 as well as legal entities from the private sector that offer public services171 are subject to the procedures provided under this law. In addition, Title IV of the Transparency Act provides for mechanisms to access fiscal information to ensure transparency into management of public finances so “…citizens can supervise the management of public finances…”172 The information required to be disclosed by Public Administrative entities on a trimester basis includes (apart from information already described above):173

- Information regarding the selection process for contracting and acquisitions – referential values, contractor’s names, total contract prices, penalties, sanctions and final costs if available;

- The progress made by performance indicators established by institutional strategic plans or in other indicators to be applied to the entities that are subscribed to the negotiated agreement.

This information has to be disseminated keeping in mind the infrastructure available to the inhabitants of the area.174

164 Law No. 27806 promulgated on February 4, 2003. Unofficial English translation available at http://www.ccrinepal.org/files/documents/legislations/11.pdf 165 Specifically by Article 15. 166 Article 3(1). 167 Article 5. 168 Request has to be an unmotivated request (Requerimiento Inmotivado), though no explanation for a request is required under any circumstance – Article 7 of the Transparency Act. 169 The term ‘public administration’ is to be understood as defined in Article 1 of Preliminary Law number 27444, Law of General Administrative Procedures. These include (a) the executive Branch including decentralized public bodies; (b) the legislative branch; (c) the judicial branch; (d) regional governments; (e) local governments; (f) autonomous entities under Constitution; (g) other agencies, projects and programs under the administrative control of the State; and (h) private entities performing public functions as authorized by the state. (unofficial translation) 170 Article 8. 171 Article 9. However, the obligations of these entities to inform are restricted to the characteristics, costs and information of the public services that they perform. 172 Article 20 of the Transparency Act. 173 Article 22 (4) and (5) of the Transparency Act. 174 Article 21 of the Transparency Act.


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There have been some concerns on the manner of the implementation of the Transparency Act. Subsequent legislations that have been passed since 2003 have restricted the scope of the information that can be sought under the legislation, such as a 2012 executive decree, which makes all information related to the country’s security secret with no exceptions.175 In addition to this, there have been complaints that there is regular failure on behalf of the authorities to comply with time limits, on levy of excessive charges, citing exceptions not provided in law, etc.176 Discussions with authorities reveals that civil servants are sometimes prohibited from providing information by their superiors, and in some cases have been punished for having provided information.177 While there is a system of habeas data specifically designed for citizens to seek production of information by the courts,178 this is found to be expensive and time consuming with citizens sometimes having to wait as long as four years to obtain a favorable judgment by the courts.179 Field interviews highlighted that even obtaining a judgment would not be of assistance, as the courts have no means of enforcing it. While the Ombudsman in Peru can receive complaints on denial of access, there have been calls for an independent body that has the power of enforcement to be set up to manage and enforce all requests for information by citizens to government departments. Given Peru’s success with independent legal bodies, one advises that such an entity is set up in the near future to help protect this initiative from any further erosion. – Whistleblower Protection – Pursuant to Article 33 of the UNCAC, Peru has a Whistleblower Protection law in place since 2010.180 The law protects individuals from reporting any arbitrary and illegal acts by public officials.181 An act is considered to be arbitrary and illegal under the law if there is a commission or omission by a public official that violates a law in force or jeopardizes the functioning of the entity or performance of a public service.182 The complaints are to be made to Comptroller General (Contraloria General de la República), who would evaluate the matter and take it forward on merits.183 The law provides for and protects the confidentiality of the complainant,184 though it is does not extend benefits to malicious complaints.185 In cases that result in a fine, a percentage may be provided to the complainant as a reward, unless the complainant may have benefited in any way from the commission of the crime.186

175 Executive Decree 1129. A challenge to this law is currently being considered by Peru’s Constitutional Court. 176 It appears that these concerns as highlighted in 2012 by the World Bank in Implementing Right to Information: A Case Study of Peru, available at http://siteresources.worldbank.org/PUBLICSECTORANDGOVERNANCE/Resources/285741-1343934891414/8787489-1344020463266/RTI-CS-Peru-final.pdf continue to be relevant three years later as assessed from interviews on gound. 177 See Milagros Salazar, Peru’s New Cybercrime Law Undermines Transparency Legislation, November 27, 2013 available at http://www.globalissues.org/news/2013/11/27/17870. 178 Code of Constitutional Procedure, adopted through Law No. 28237 of May 31, 2004, and which went into effect in December 2004. 179 Milagros Salazar, Peru’s New Cybercrime Law Undermines Transparency Legislation, November 27, 2013 available at http://www.globalissues.org/news/2013/11/27/17870. 180 Law on Whistle-blowers’ Protection in the Public Sector of June 2010 - Law No. 29542 (hereinafter referred to as “Whistleblower Law”) 181 Article 1 of the Whistleblower Law. 182 Article 3 of the Whistleblower Law (unofficial translation). 183 Article 4 of the Whistleblower Law (unofficial translation). 184 Article 9 of the Whistleblower Law (unofficial translation). 185 Article 10 of the Whistleblower Law (unofficial translation). 186 Article 8(e) of the Whistleblower Law (unofficial translation).


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While conforming in form to international requirements, the law in Peru has a limitation that it does not protect whistle-blowers who are not associated with the administration, private employees, journalists and private citizens specifically. This is noted as an inadequacy in the law as it will not protect private persons against retaliation for calling out perceived wrongs in good faith. V. ENFORCEMENT AGENCIES IN PERU There is no designated centralized agency to handle cases of corruption in Peru. Some entities such as the High-Level Anti-Corruption Commission (La Comisión de Alto Nivel Anticorrupción - CAN Anticorrupción) and the Ombudman’s office (Defensoría del Pueblo) have a supervisory role, but cannot take any direct punitive or remedial action. Prior to dealing with these, it is prudent to examine the role of some other institutions that have powers of prosecution and enforcement against private entities and erring individuals viz., the Comptroller General’s office and the Attorney General’s office along with public prosecutors. – Office of the Comptroller General (Contraloría General de la Republica) – This is an autonomous constitutional entity that is responsible for implementation of the national budget, public debt operations and the activities of institutions at all levels of the central, regional and local governments under its control.187 It is the highest organ in the country that exercises fiscal oversight over governmental entities. It exercises oversight over all government entities, including state-run enterprises.188 Apart from performing its oversight activities though audits, the Comptroller General’s (“CG’s”) office is legally empowered to instruct public prosecutors or legal representative of audited entities to institute appropriate legal actions if audits reveal financial damage or prima facie evidence of crimes.189 This power was later expanded in 2010 by granting the CG’s office the power to punish civil servants involved in serious violations of legal or administrative rules governing their conduct, as may have been detected in the audit reports.190 The punishments are administrative / functional in nature and these can be appealed to higher court of Administrative liabilities that is attached to the CG Office.191 Appeals from this body can be made as an administrative action to the Supreme Court under the Constitution.192 While this entity is not empowered to take actions against private individuals, they are required to report discrepancies to the prosecutor’s office that can then institute criminal actions, if warranted. – The Attorney General’s Office and Public Prosecutors – The Attorney General’s (“AG’s”) office is an autonomous constitutional entity,193 which has 187 Created by Article 82 of the Constitution. 188 Article 9 of the Law of the National Oversight System and of the Office of the Comptroller General of the Republic - Law No 27785 of July 13, 2002. Final Report on the Republic of Peru, Mechanism for Follow-up on the Implementation of the Inter-American Convention against Corruption, 5 (2013) available at http://www.oas.org/juridico/PDFs/mesicic4_per_en.pdf. 189 Ibid. 190 Vide Law N° 29622 of December 6, 2010. Final Report on the Republic of Peru, Mechanism for Follow-up on the Implementation of the Inter-American Convention against Corruption, 6 (2013) available at http://www.oas.org/juridico/PDFs/mesicic4_per_en.pdf. 191 Created by Article 56 of Law No. 29622. Ibid. 192 As provided for in Article 148 of the Constitution. 193 Article 158 of the Constitution.


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been granted the power inter-alia to represent the society (essentially the state) in legal proceedings, conduct criminal investigations from their initiation,194 institute criminal proceedings and advice the Congress and the President on legal matters.195 Designated national and regional public prosecutors appointed by the executive form part of the AG’s office.196 Public Prosecutors perform functions in connections with the different issues affecting the branches of government and entities to which they are attached administratively.197 In addition to the Public Prosecutors (and deputy Public Prosecutors), Legislative Decree No. 1068 of 2008 also establishes, two other categories: Ad-hoc Public Prosecutors and Specialized Public Prosecutors (offices which have since been merged), who defend the State in specialized proceedings or procedures.198 One such specialized position is that of the “Anti- Corruption Prosecutor”. These prosecutors are specifically designated to investigate and try corruption cases under the Criminal Code.199 These prosecutors may institute actions on the basis of a compliant by a private person, obtaining information from any other source or upon reference by the Attorney General’s office. In order to coordinate actions between the CG’s office, AG’s office and the Judiciary, the heads of these respective institutions then signed an agreement in 2012200 with the intent of improving the efficiency of prosecuting corruption cases, where these Anti-Corruption Prosecutors play an essential part. A flowchart of the working between the three institutions on handling cases has been provided in Annex 1. – Supervisory Agencies – As mentioned above, there are organizations that supervise and assist in coordinating the efforts against corruption between various governmental agencies. These are:

(1) ((a) High-Level Anti-Corruption Commission: This entity was established in 2010 by Supreme Decree 016-2010-PCM and enacted in January 2013 by Law No. 29976. The Commission seeks to combine and coordinate the efforts of various departments of the government, and also sets the medium and long-term policies to prevent and combat corruption in Peru. Peru’s long-term anti-corruption strategy as developed by the commission is set out in the National Anti-Corruption Plan (2012-2016), which establishes the general guidelines and vision for the entire country.201 The Commission is chaired by the President of the Council of Ministers, and includes senior officials from the three branches of the government,202 Civil Society Organizations,203 and the 194 To this end the National Police in Peru is obliged to enforce the orders of the office within the scope of its authority. Article 159(4) of the Constitution. 195 Article 159 of the Constitution. 196 Final Report on the Republic of Peru, Mechanism for Follow-up on the Implementation of the Inter-American Convention against Corruption, 17 (2013) available at http://www.oas.org/juridico/PDFs/mesicic4_per_en.pdf. 197 Article 12 of Legislative Decree No. 1068 of 2008. Ibid., 37. 198 Legislative Decree No. 1068, Article 15. Ibid.38. 199 Under Article 46 of the Rules of Procedure for the Legal Defense of the State System (adopted by Supreme Decree No. 017- 2008-JUS). Ibid. 200 Copy of the agreement (in Spanish) available at http://www.oas.org/juridico/pdfs/mesicic4_per_cgr_conv1.pdf. 201 Original Spanish version can be obtained at http://can.pcm.gob.pe/wp-content/uploads/2013/02/Plan-Nacional-Anticorrupcion-2012-2016-DS-119-2012-PCM.pdf. Unofficial English version at https://translate.google.com/translate?depth=1&hl=en&prev=search&rurl=translate.google.com&sl=es&u=http://can.pcm.gob.pe/wp-content/uploads/2013/02/Plan-Nacional-Anticorrupcion-2012-2016-DS-119-2012-PCM.pdf. 202 The senior most officials from the Ministry of Justice and Human Rights, Constitutional Court, National Council of the Judiciary, Public Prosecutor’s Office, National Assembly of Local Governments, Association of Municipalities of Peru, National Agreement Forum, Comptroller General of the Republic, Ombudsman’s Office, Public Procurement Authority, and National


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business sector.204 With the understanding that the commission exercises considerable influence in setting the policy on anti-corruption in Peru.

(a) (b) Ombudsman: This is an autonomous constitutional office.205 The head of the Ombudsman is elected by the Congress with two-thirds majority and has a term of five years.206 The main duty of the office is to defend constitutional rights, and to ensure the provision of public services to citizens.207 Thus, anti-corruption is a part of the responsibilities that it has. In compliance with the Transparency Act, it publishes annual reports and provides recommendations, though the government is not obliged to follow its recommendations.

This institution does not have the power to take direct punitive or remedial action. Nevertheless, it is understood that the recommendations of the institution are persuasive and have moral authority, as the Ombudsman is widely considered as one of the most credible public institution at the turn of the decade.208 – Corruption at Sub-national Levels of Government – The mining sector is a significant revenue contributor to the Peruvian economy. Mining companies paid USD 3.3 Billion as taxes in 2013, which represented 1.6% of Peru’s GDP, 9.7%

Assembly of Rectors. http://www.iaaca.org/AntiCorruptionAuthorities/ByCountriesandRegions/P/Perujigou/201310/t20131021_1227331.shtml 203 National Council for Public Ethics, PROETICA; General Workers’ Unions of Peru; Catholic and Evangelical Churches. Ibid. 204 National Confederation of Private Business Institutions, CONFIEP; and National Society of Industries, SNI. Ibid. 205 Article 161 of the Constitution. 206 Ibid. 207 Article 162 of the Constitution. 208 Gordon Evans, The People’s Defender: Strengthening the Office of the Ombudsman in Peru, Deployment for Democratic Development, Canadian International Development Agency (2012) available at http://www.ipac.ca/ecommerce/uploads/Strengthening-the-office-of-the-ombudsman-in-Peru.pdf.

Issues with Peru’s Enforcement Agencies – Why Caesar’s wife must be above suspicion

Qualitative interviews, especially with the private sector the revaealed that the Ombudsman enjoys significant credibility, both within the government and amongst the general population. The Ombudsman is an independent body and is widely trusted to be so within Peru. However, it has limited powers of enforcement. Most of this institution’s success is attributable to the personal credibility of the individuals who have headed this institutions since its inception, Jorge Santistevan de Noriega, Walter Albán (in an interim position) followed by Beatriz Merino, and the current incumbent Eduardo Vega Luna. In contrast, the agencies that have actual powers of enforcement such as the Attorney General’s office, the Police and Judiciary have had to address with issues of corruption within their own ranks. For instance in 2015 the then Attorney General Carlos Ramos Heredia was suspended on grounds of corruption for his alleged ties with the ex-governor of Ancash, Cesar Alvarez (See Peru Attorney General Carlos Ramos Heredia Dismissed, BBC, May 14, 2015 available at http://www.bbc.com/news/world-latin-america-32734657). The prosecutor’s offices, are subject to political and judicial interventions, which have interfered with prosecutions in the past (For instance see Corruption in Peru Aids Cutting of Rainforest, New York Times, October 18, 2013, available at http://www.nytimes.com/2013/10/19/world/americas/corruption-in-peru-aids-cutting-of-rain-forest.html). Thus, addressing corruption internally within these departments is a necessary and an immediate step to help further Peru’s national efforts against corruption.


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of the total tax revenue and 7.3% of the total government revenue.209 Taxes paid by mining companies are divided Corporate Tax,210 mining royalties,211 special mining taxes and levies212 and employees’ participation in earnings.213 Of these corporate taxes, which constituted 70% of the total taxes collected by the Government in 2013, half was distributed to the subnational governments in a proportion determined by the Ministry of Economy and Finance in accordance to Article 2 of Law No. 28322 with the other half being retained by the Central Government.214 This transfer of taxes from the Central government to the sub-national government is referred to as the ‘canon’ or ‘canon minero’ since it is collected from companies extracting metallic and non-metallic minerals. A flow chart showcasing the proportion of sharing of corporate taxes is provided as Annex 2. It is relevant that the canon is distributed exclusively to the regions where the minerals are extracted. The subnational governments have little accountability in the expenditure of these revenues, though priority is given for infrastructure projects and a part has to be provided for the sustainable development of the communities affected.215 These revenues cannot be spent on allowances or wages under any circumstance.216 In addition to this, revenue from royalties, accounting for 6% of the total tax revenue from mining in 2013, is distributed exclusively to the regional and local governments where the minerals are extracted, i.e. not to the central government or to non-producing regions. The special mining taxes and levies are retained by the central government. This leads to two results:

(a) A considerable amount of money is given to sub-national government entities for expenditure;

(b) This revenue is not evenly distributed, with mineral-rich areas obtaining disproportional revenue leading to skewered development.217

Inequity of the distribution aside, it is worthwhile to note that sub-national systems in Peru are fairly nascent and do not have the institutional capabilities to handle such revenues.218

209 Jane Korinek, Managing the Minerals Sector: Implications for Trade from Peru and Colombia, OECD Trade Policy Papers, No. 186, OECD Publishing, Paris, 29 (2015). 210 Which is the equivalent of income tax that has to be paid by all corporates with the rate of 30%. 211 To be paid by mining concession holders. See E&Y Report - Peru’s Mining & Metals Investment Guide 2015/2016, p. 50 (2016) available http://www.ey.com/Publication/vwLUAssets/Gu%C3%ADa_Minera_2015-2016/$FILE/EY-Peru-mining-and-metals-investment-guide-2015-2016.pdf. 212 Ibid. 213 Under Peruvian Law, workers in companies with 20 or more employees, participate in the profits of the company, according to the percentages set by law. Delloitte Peru Tax Guide 2014 available at https://www2.deloitte.com/content/dam/Deloitte/pe/Documents/tax/tax_guide%202014-rev.pdf. 214 Jane Korinek, Managing the Minerals Sector: Implications for Trade from Peru and Colombia, OECD Trade Policy Papers, No. 186, OECD Publishing, Paris, 29 (2015). 215 See unofficial translation of the SNMPE website available at https://translate.google.com/translate?hl=en&sl=es&tl=en&u=http%3A%2F%2Fwww.snmpe.org.pe%2Fpdf%2F183%2Fque-es-el-canon-minero.pdf. 216 Ibid. 217 See Annex 3. 218 In 2013, Regional Governments managed to spend 76% of the monies, whereas the Local Government spent 61% of the available resources. Jane Korinek, Managing the Minerals Sector: Implications for Trade from Peru and Colombia, OECD Trade Policy Papers, No. 186, OECD Publishing, Paris, 32 (2015).


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Circumstances such as these facilitate conditions for corruption. Decentralization has led to political fragmentation, with regional players dominating local elections. The 2014 local elections in Peru saw 1,395 candidates who had been convicted of criminal or civil offenses, including 7 found guilty of homicide, 13 of drug trafficking, and five of terrorism and a further 127 candidates were under investigation for money laundering.219 In context of corruption, in 2014, 19 of the 25 regional presidents were under investigations for corruption220 with 9 of the regional presidents in Peru (out of the 25) were accused of Corruption in Peruvian Courts, with the most common charge being misappropriation of public funds.221 Notably there are more allegations against officials in areas that have benefitted from the canon revenues such as Cusco, Ancash, Ayacucho, Araquipa, Cajamarca, to name a few.222 A notable and recent example is that of the Juan Guillen, the governor of Arequipa who was placed under arrest in relation to the award of a highway contract where USD 6 million has been unaccounted.223 While Peru’s conformance to the EITI helps bring about transparency in payments from companies to revenue authorities, it does not address the financial and regulatory controls that the government may lack at the regional and local levels.

Peru had implemented the Public Works Through Taxes (Obras Por Impuestos) program through Law No. 29230 in 2009, which allows for companies to execute infrastructure work directly within the region. It is recommended that companies be 219 Corruption as a political ideology, Latinamerica Press, October 21, 2014. Available at http://www.lapress.org/articles.asp?art=7087. 220 Corruption besmirches decentralised government, June 28, 2014 available at http://www.perusupportgroup.org.uk/article-741.html 221 Jane Korinek, Managing the Minerals Sector: Implications for Trade from Peru and Colombia, OECD Trade Policy Papers, No. 186, OECD Publishing, Paris, 32 (2015). 222 Corruption besmirches decentralised government, June 28, 2014 available at http://www.perusupportgroup.org.uk/article-741.html 223 Former Governor placed under house arrest in Southern Peru, Peru Reports, July 12, 2015 available at http://perureports.com/2015/07/12/former-governor-under-house-arrest-in-southern-peru/.

PeruvChile–wheredoesthedifferencelie?Longandworthy rivals in the fieldsofpolitics, thepalate andPisco,Chile isconsideredmoresuccessfulthanoverPeruintermsofaddressingcorruption.Chile is rates in the region’s highest rank of 23 out of 168 countries onTransparencyInternational’s2015CorruptionPerceptionIndex,againstPeru’sdismal88. FurtherChile is amemberof theOECD intowhich Peru seeks togain admittance. This is interesting given that both ex-Spanish colonies hadsimilar experiences since their independence, having equally troublingstruggle with economic inflation and totalitarian regimes. They are alsosimilarly rich in resources, though Chile has an edge with most of theextractiveactivities located inthesparselypopulatednorthernparts, leavinglesserscopeforsocialissues.Withthatcaveat,thereisverylittlethatexplainsthewidedisparity in corruption rankingsbetween the twocountries thoughChile’slegalsystemsabilitytohandlecorporatecorruptionisdecidedlymoreadvancedthatPeru’s-withcorporatecriminal liabilityrecognized, corporatecompliance programs being eligible for credit and companies having theoption of entering into leniency agreements with prosecutors. However,research also indicates a stark difference in the public reaction to thephenomenonofcorruptionwithChilenotendorsingthe lineofthoughtthatPeruseemstolerate-thatitisalrightifapublicofficial“steals,butdoespublicwork”.For instanceseethereportingofLima’sMayor’selectionwinin2014by the Economist (http://www.economist.com/news/americas/21623706-corruption-and-political-fragmentation-threaten-perus-democracy-divide-and-bribe ) versus a PanAm Post reporting of the corruption scandals thathave hit President Michelle Bachelet of Chile in 2015(https://panampost.com/hana-fischer/2015/05/27/corruption-scandals-are-water-off-chiles-back/).

– Recommendation– Collaborate with Public Works Through Taxes


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incentivized to subscribe to this program. This would ensure adequate oversight in execution of projects relieving the state’s resources from executing these projects directly. However, care has to be taken that (a) the state and the companies are aligned in prioritizing projects that may benefit the local communities; and (b) there are mechanisms to audit expenses by companies. The fiscal oversight and control systems, such as the regional branches of the CG’s office, at the local levels to detect irregular activities, should be strengthened.

VI. CURRENT LEGAL FRAMEWORK AND POLICIES IN RELATION TO MINING – Introduction to the Mining Chain in Peru –This section focuses on the potential risks of corruption in the Peruvian mining industry, especially during the exploration and exploitation stage. To fully analyze the corruption issues, it is necessary to first have a general picture of the regulatory framework, including regulations associated with mining, the environment and investment. The following parts will first provide an introduction to the concession, or permitting process, in mining. Then follows the review on the interaction between mining concession and environmental protection under environmental law as well as domestic or foreign investment law. This section will also briefly discuss potential corruption risks in other aspects such as water authorization and post-license activities along the mining value chain. Finally, the spaces for corruption in the mining-related license process will be identified and recommendations are provided to close these gaps. Given the complexity and risks inherent in the industry, it is not surprising that the mining sector is among the most regulated industries, within a country and globally. Corruption risks exist under each stage of the mining chain. Under the Peruvian General Mining Law and other related applicable laws, concessions, permits and licenses issued from the regulatory authorities are always required before the start of a mining operation.224 The performance of the rights and obligations by the concession holders are also supervised by government officials as they are indispensable to implementing the country’s policies and laws. In this context, the government and private companies are the essential stakeholders in the mining industry, including the development of infrastructure. Potential corruption risks may arise when the government’s power to grant concessions and approvals is undermined by bribery from private companies interested in securing a license or getting a quick and attractive deal. This part introduces the interaction among the government, companies and other stakeholders along the mining chain, with a particular focus on the concession process for the following reasons. First of all, Peru has become a “natural choice” of foreign investors looking into its mining industries. International investment has made a great contribution to Peru’s exploration and mining industry.225 The beginning of foreign investment lies in obtaining licenses for exploration and mining. Such start in the mining chain has potential gaps for corruption when the government official deals with private investors if the legal framework is not robust enough to 224 General Mining Law, Second Title. 225 See E&Y Report - Peru’s Mining & Metals Investment Guide 2015/2016, p. 50 (2016) available http://www.ey.com/Publication/vwLUAssets/Gu%C3%ADa_Minera_2015-2016/$FILE/EY-Peru-mining-and-metals-investment-guide-2015-2016.pdf.


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control corruption from happening. Secondly, license related fees usually comprises of a certain portion of the payment by the company to the government. The lack of information on payment and revenues can facilitate corruption.226 Thirdly, a more transparent decision-making process of how to grant concessions by either central or regional governments is also one of the keys to address the gaps in potential corruption. Without a clear decision-making process in concession procedures, later monitoring and enforcement would be harder to control. In this context, this section will pay attention to the licensing process and focus on how to curb corruption right from the beginning of the mining chain. According to the Peruvian General Mining Law, activities along the mining chain include reconnaissance (preliminary prospection), prospection (e.g., geological survey), exploration, exploitation (operation) and other activities during or after operation, including mine closure and site rehabilitation.227 Figure 13 illustrates the general chain in accordance with Peruvian General Mining law. It is worth noting that each stage along the chain may require applicants for concessions or concession holders to obtain licenses, permits or approval from competent authorities. For example, to start exploration, the applicant, i.e. the private mining company must obtain a mining concession from the Ministry of Energy and Mines. The concession holder also needs to obtain an environmental license, rights to surface land or water use permits from other relevant authorities. The next part will give particular focus on the legal framework, regulatory authority, application and approval process, monitoring and oversight, and post-license issues around the topic of mining license to identify potential loopholes for corruption. Figure 13: General Mining Chain in Peru

Figure 13: General Mining Chain in Peru 226 See EITI report - Peru 2013, available at https://eiti.org/files/Peru-2013-EITI-Report.pdf. 227 General Mining Law, Second Title.

MiningChain

ReconnaissanceandProspection GeologicalSurvey Nopermit

Exploration MiningConcession

ExploitationandOperation

MiningConcession

Otherapprovals EnvironmentalCertificationetc.

GeneralLabor,beneficiation,andmineraltransport

Concessions

Otheroperationactivities Procurementetc.

MineClosure Siterehabilitation


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– Legal Framework of Mining Licenses, Loopholes and Corruption Risks – The mining license process requires governmental officials’ discretion and interaction with domestic or foreign companies looking for mining opportunities. Without good governance and institutional control, this process poses the greatest the risk for corruption to occur. An illustrative example is as follows: foreign investors may first deal with government officials to obtain their mining concessions before the start of mining operations and this would usually include discussions on the contract or concession conditions. The grant of licenses not only generates part of the revenues for the government and ensures a long term right for the private company to conduct mining activities in Peru. In this context corruption risk arises, if either the government prefers attracting investment and grant the concession whilst foregoing unfavorable conditions, or the company is eager to get a quick and lucrative deal, there is a likelihood that potential risks in corruption may occur during the negotiation process and affect the government’s decisions. If the project at the outset were not transparent and fair, there would be no guarantee of limiting risks in the long-term post-license stage. Therefore, before identifying corruption loopholes, it is necessary to understand the legal framework of mining licenses in Peru. Under Chapter II “The Environment and the National Resources” of the Peruvian Constitution,228 the State has the ownership of and the sovereignty to regulate the utilization of natural resources. Concessions may be granted to private individuals subject to conditions on use of such resources.229 Mining concessions are regulated under the key mining legislation in Peru: the General Mining Law of 1992,230 and the corresponding regulations231 enacted in 1994. Other laws have been enacted to supplement the aforesaid legislations such as the Organic Law of Sustainable Use of Natural Resources,232 the Regulations for Mining Procedures,233 the Mining Closure Law234 and its corresponding regulations,235 the Regulations on Citizen Participation for Mining Activities236 as well as the recent legislation on the Right to Prior Consultation to Indigenous and Tribal Peoples Law.237 The main regulatory authority in the mining sector is the Ministry of Energy and Mines (MINEM),238 whose objective is to promote sustainable growth, facilitate private investment and preserve the environment. Under the Second Title of General Mining Law, potential concession applicants in the mining sector must obtain a concession under one or more of the four types of

228 See Peruvian Constitution, English translation available at https://www.constituteproject.org/constitution/Peru_2009.pdf?lang=en. 229 Constitution, Art. 66. 230 The General Mining Law, Supreme Decree 014-92-EM, see original version available at http://www.minem.gob.pe/minem/archivos/file/Mineria/PUBLICACIONES/CDROM/2013/files/LGMESPANOL.pdf 231 Supreme Decree 03-94-EM 232 Law 26821 233 The Regulation for Mining Procedures, by Supreme Decree 018-92-EM 234 Law 28090 235 by Supreme Decree 033-2005-EM 236 by Supreme Decree 028-2008-EM 237 Law 29785, by Supreme Decree 001-2012-MC 238 http://www.minem.gob.pe/


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concessions (Mining Concessions,239 Beneficiation Concessions,240 General Works Concessions,241 and Mineral Transportation Concessions)242 to conduct exploration, exploitation and other activities. Under the MINEM, the Geological Mining and Metallurgical Institute243 (INGEMMET) is responsible for granting mining concessions. As part of INGEMMET, the Office of Mining Concessions of the Public Mining Registry is authorized to issue mining concessions.244 However, as part of the MINEM, the General Directorate of Mining is authorized to issue other types of concessions.245 This report examines and analyzes the process of mining concessions. Mining concessions are generally classified as “metallic” and “nonmetallic” without any overlap between the two concessions.246 To obtain a mining concession for exploration and exploitation, the applicant needs to follow the administrative procedures set out in the Regulations for Mining Procedures as implemented by INGEMMET. In addition to the aforesaid concessions, the applicant is also required to obtain a number of other permits or approvals under environmental, water, property and other applicable laws before the start of mining operations. The concessions are granted on a “first-come, first-served” basis.247 It should be noted is worth mentioning that concessions for Arsenal and Small-scale Mining are awarded by Regional governments and not by the aforesaid federal authorities. The overall application process for a mining concession248 starts from a petition filed with INGEMMET. In addition to filling official forms, an applicant needs to pay the processing fees to INGEMMET and provide such payment proof along with application forms. Following receipt of the petition, the INGEMMET’s legal and technical teams then review the application. In practice, it generally takes more than the seven-days for completion of the review process. If all requirements are fulfilled and the application is satisfactorily, the applicant will be notified of the same. The applicant then has 30 business days to publish notices in the official gazette or newspapers, and 60 calendar days to submit proof of the publication of legal notices to INGEMMET. Thereafter INGEMMET is required to issue additional technical and legal reports as favored opinion for a mining concession to be granted and five working days to send the file to the president of INGEMMET. The decision of approving the title to the mining concession will not be rendered by the President earlier than 30 days from the last day of publication. Within the first 15 days of the following month, INGEMMET will publish the title to mining concession in the official newspaper if the title is approved. Once the title is granted, the concession holder

239 General Mining Law, Article 7-16. 240 General Mining Law, Article 17-18. 241 General Mining Law, Article 19-21. 242 General Mining Law, Article 22-23. 243 Third Title, General Mining Law. More information available at http://www.ingemmet.gob.pe. 244 Article 104, 105 and 117, General Mining Law. 245 Article 101, General Mining Law. 246 Article 13. General Mining Law. 247 Article 112, General Mining Law. Also see KPMG Report , Peru - Country Mining Guide, p. 9 (2013) available at https://www.kpmg.com/Ca/en/industry/Mining/Documents/Peru.pdf. 248 More information about INGEMMET available at http://www.ingemmet.gob.pe/form/plantilla01.aspx?opcion=382; also see http://latinresources.com.au/overview_of_process_for_grant_of_a_mining_concession_in_peru


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must register with the Peruvian Public Registry for its record. It generally takes five to ten days to complete the registration process.249

Figure 14: Application Process for Mining Concession

After grant of concession and prior to start of operation, the licensing process may be prolonged on account of other permits or approvals that may be required from relevant regulatory authorities such as the National Water Authority and the General Directorate of Mining Environmental Affairs (DGAAM).250 The amount of time required for each approval generally varies from 20 days to 120 days. A number of administrative agencies are involved in the process including the Ministry of Agriculture and Ministry of Culture.251 For example, the licensing process for the Antamina Project,252 one of the largest mining projects lasted more than three years. In the end, Antamina obtained approximately 243 licenses and permits during the entire process from survey to construction.253 Each project requires numerous licenses and permits from multiple administrative agencies thus resulting in a lengthy process. Such a complex and prolonged procedure, combined with the difficulty of dealing with government officials with vested interests may result in instances of bribery from private companies to secure the license or approval in order to enable the company to proceed with the project’s approval and 249 http://www.ingemmet.gob.pe/form/plantilla01.aspx?opcion=382; also see http://latinresources.com.au/overview_of_process_for_grant_of_a_mining_concession_in_peru 250 Also see, Global Offering of Chinalco Mining Corporation International, Laws and Regulations Relating to the Industry, at pp. 103-128. http://www.chinalco-cmc.com/u/cms/www/201401/22151556oj8a.pdf. (“Prospectus of Chinalco International”). 251 See the approval list on the Prospectus of Chinalco International, which develops the Toromocho Project located Peru, at pp. 105-107 available at http://www.chinalco-cmc.com/u/cms/www/201401/22151556oj8a.pdf. 252 See generally Steven D. Botts, Licensing and Permitting of the Antamina Project, (2003), available at http://www.santabarbaraconsultants.com/licensing-permitting-antamina-project/. 253 Ibid, p. 6.

Petition•Payment Review Publication

Reports ApprovalofTitle PublicationofTitle

Register


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permit process. In such instances the meaning and effectiveness of administrative process would be rendered questionable. Another case, Chinalco, required a number of other permits and licenses be obtained before the start of exploration and exploitation. Chinalco’s prospectus listed more than 20 licenses as essential to be compliant with Peruvian’s mining legal framework.254 Qualitative interviews with a foreign company investing in Peru,255 enabled us to put forward the following chart showing how the company identified the licensing process with the help of outside counsel. See Figure 15.

Figure 7: Foreign Investor’s Licensing Process

254 Prospectus of Chinalco International, which develops the Toromocho Project located Peru, at pp. 105-107 available at http://www.chinalco-cmc.com/u/cms/www/201401/22151556oj8a.pdf. 255 As gathered from a meeting with a foreign company (name withheld) on March 15, 2016 investing in mining in Peru.


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A prior consultation procedure for indigenous people whose rights might be affected by a mining concession may be included in the process under the Law of the Right to Prior Consultation to Indigenous People.256 However, such affected indigenous communities do not have any veto rights against a mining concession.257 The rights of indigenous persons have been detailed in the section for social license. The Peruvian Constitution grants foreign persons or corporations the same treatment as Peruvian nationals.258 As to foreign investment, there are two major laws in Peru: the Foreign Investment Promotion Law (Legislative Decree 662) and the Framework Law for the Growth of Private Investment (Legislative Decree 757) and the main regulatory authority is the Supervisory Agency for Investment in Energy and Mining. Foreign investors in mining are restricted to acquiring or possessing any mines or energy resources within a distance of 50 kilometers from the borders, the violation of which results in loss of concession and right.259 Therefore, foreign investors shall, before any application procedures, apply to the President of Peru and the Board of Ministers for approval of the acquisition of mines along such borders with limits. Once the mining concession is granted, the concession is irrevocable provided the holder complies with certain obligations,260 including payment of the good standing fee,261 meeting the minimum threshold of annual production, and filing a consolidated annual statement during operation and production.262 If the concession holder fails to comply with applicable conditions and obligations, its mining license is subject to revocation and termination.263 The potential for corruption is embedded in the administrative process due to gaps in the legal framework. Discretion of governmental officials is inherent in the licensing process and this discretion has a direct impact on the degree of corruption risk.264 As the mining concession is granted on a “first-come, first-served” basis, it is difficult to determine how governmental officials will make decisions if there is a conflict between different applications. However, the mining laws do not stipulate a qualification standard for concession applicants, and the concession process does not include procedures to evaluate the capacity of these applicants.265 Instead it has been suggested that due to the desire to attract foreign investment, officials may make inefficient and arbitrary decisions without considering the qualification of applicants or consulting other stakeholders266 thus relegating the process as mere formality for applicants and government officials. Furthermore, in the application process, the legal and technical team of

256 Law 29785. 257 Ibid. 258 Art. 71, Constitution. 259 Art. 71, Constitution. 260 Art. 10, General Mining Law. 261 Art. 39, General Mining Law. 262 Six Title: Obligation of Holders of Concessions, General Mining Law. 263 Eighth Title: Extinction of Concessions and Twelfth Title: Procedures, General Mining Law. 264 IM4DC Action Research Report, Constructing a Diagnostic Framework on Corruption Risks in Mining Sector Licensing, p. 30 (2015). 265 Columbia School of International and Public Affairs Report, Mining in Peru: Benefitting from Natural Resources and Preventing the Resource Curse Capstone Workshop – Spring 2015, 16 (2015) available at https://sipa.columbia.edu/sites/default/files/Capstone%20-%20Peru%20(25%20June%202015)_FOR_PUBLICATION.pdf. 266 Ibid, p.15.


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INGEMMET will exercise its discretion in issuance of favorable opinions before submitting to the head of INGEMMET. The president of INGEMMET makes the final decision on approval of mining concessions. If certain personal interests influence the discretion by the head or the teams, corruption risk may increase, as a result of which, the gain or loss of approval is not a result of reasonable decision-making. An appeal for review against the resolution can be filed to the Mining Council following the proceeding requirements,267 however, as there is a lack of clear and transparent qualification standards of how decision of approval or non-approval is made, it is doubtful that whether the further proceedings under another organ of Ministry of Energy and Mines can guarantee a fair result of review. Secondly, under the current regulatory framework, the Ministry of Energy and Mines maintains the right to award and monitor mining concessions, and one of its bodies, DGGAM, reviews issues of environmental compliance. However, the Ministry of Environment and its corresponding agencies should also take part in the approval and monitoring process, which has been discussed in the ‘Social License to Operate’ Section of this report. Overlapping administrative authorities in the mining industry, environmental protection and other related areas result in ambiguity and uncertainty for companies leading to circumstances where investors may avoid complex legal and regulatory obligations by engaging in corrupt practices. Such circumstances may not in all instances lead to corruption; nevertheless, respective responsibilities should be clearly defined without overlapping. Thirdly, when the mining licensing process is complex and prolonged, as illustrated by the examples of Antamina and Chinalco, companies must deal with multiple administrative agencies and various applications for licenses and permits. The complex and prolonged process of securing mining concessions may lead some companies to resort to expedited and simpler means, which may include bribing governmental officials as an option for private investors. Fourthly, oversight and monitoring is necessary to control corruption, but limited public consultation requirements and transparency make corruption easier with limited accountability. Although the public consultation law regarding indigenous people is an improvement, the lack of consultation with other affected local populations before publication of concession titles undermines the community’s engagement in the mining concession process. Without the opportunity to know about a potential license, decisions are not transparent and public supervision cannot be guaranteed, both of which may have the effect of increasing opportunities for corruption.268 With regard to transparency, there is no clear rule requiring disclosure of licensing information in the mining licensing process, such as licenses, distribution percentage, pending licenses, valid, canceled and transferred licenses. Though consultation serves as a means for control, it may also give rise to corruption when companies try to bribe community leaders or groups.

267 Twelfth Title, Proceedings. 268 Columbia School of International and Public Affairs Report, Mining in Peru: Benefitting from Natural Resources and Preventing the Resource Curse Capstone Workshop – Spring 2015, 17 (2015) available at https://sipa.columbia.edu/sites/default/files/Capstone%20-%20Peru%20(25%20June%202015)_FOR_PUBLICATION.pdf. .


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– Legal Framework of Environmental Protection Related to Mining Licenses and Loopholes for Corruption –In addition to the procedures related to mining concession described above, water licenses and environmental certification, among others, must be obtained from competent authorities. For example, mining companies must obtain a water use permit from the National Water Authority (ANA) in order to utilize water for the purpose of the concession.269 Environmental certification is another necessary approval before exploration and exploitation can commence. In order to obtain the environmental certification, an environmental impact assessment is required, as stipulated in mining, as well as environmental protection, regulations.270 This part of the report introduces the relevant environmental protection legal framework associated with mining activities, and thereafter highlights the EIA process so as to identify areas prone to corruption. In Peru, the main law governing environmental protection in the mining context is the General Environmental Law,271 although the Fifteenth Title of the General Mining Law also has a provision related to environmental protection. Other legislation and regulations that oversee activities for environmental protection in the mining sector include, but are not limited to, the Law on the National System of Environmental Impact Assessments272 (“SEIA Law”), the Regulations on Environmental Protection for Mining-Metallurgic Activities,273 and the Environmental Regulations for Mining Exploration Activities.274 Additionally the Regulation on the Citizen Consultation and Participation enacted in 2009 also covers environmental issues.275 The Ministry of Environment276 was created in 2008277 as the general body for implementation and enforcement of these laws. Within the Ministry of Environment: (i) the National Environmental Certification Service (SENACE) was created in 2012 to oversee matter pertaining to environmental protection; and (ii) OEFA (the Environmental Evaluation and Oversight Agency)278 was created to audit compliance of all mining projects and operations. Issues of complexity in the institutional framework and overlapping of functions exists among institutions in the environmental regulatory area as well. For example, the General Directorates of Environmental Affairs (DGGAM) under the Ministry of Energy and Mines is authorized to play a role in monitoring and compliance with environmental requirements within the mining sector and it has the authority to make decisions on environmental certification. The procedures of environmental certification are stipulated by Article 6 and Chapter II of SEIA Law as illustrated by the following chart in Figure 16:

269 Art. 37, General Mining Law, also see the General Water Law (Law 17752). 270 Columbia School of International and Public Affairs Report, Mining in Peru: Benefitting from Natural Resources and Preventing the Resource Curse Capstone Workshop – Spring 2015, 147 (2015) available at https://sipa.columbia.edu/sites/default/files/Capstone%20-%20Peru%20(25%20June%202015)_FOR_PUBLICATION.pdf. 271 Law 28611, available at http://www.fonamperu.org/general/documentos/leyambiente.pdf 272 Law 27446, available at http://www.minam.gob.pe/wp-content/uploads/2013/10/Ley-y-reglamento-del-SEIA1.pdf 273 by Supreme Decree 016-93-EM 274 by Supreme Decree 020-2008-EM 275 More information is detailed under the section of social license. 276 More information available at http://www.minam.gob.pe 277 by Supreme Decree No. 1013 of 2008 278 KPMG Report , Peru - Country Mining Guide, p. 10 (2013) available at https://www.kpmg.com/Ca/en/industry/Mining/Documents/Peru.pdf.


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Figure 16: Procedures for Obtaining Environmental Certification

The mining industry and its activities can have a serious impact on the environment at the site or its surrounding areas. The quantity and quality of water, soil, species, and air may be adversely impacted by the operation and production of mines. Thus, to minimize and mitigate against such adverse impacts an environmental impact assessment needs to be conducted prior to development and operation of the mine by the concession holder. In this context corruption risks may arise during the process of application and approval of the environmental impact assessment. Under the SEIA Law, there are three categories in the EIA process: Category I: Environmental Impact Declaration for activities, projects or works which will cause low negative environment impacts; Category II: Semi-detailed EIA for projects, activities or works which can cause moderate environmental impacts; and Category III: Detailed EIA for the projects, activities or works which can cause significant negative environmental impacts.279 Usually, mining projects, especially large ones, will fall under Category III. The content and element of an EIA is provided for under the Article 10 of the SEIA Law. The environmental impact study should be conducted by entities with professional experts in environment management authorized by and registered with competent environmental authorities.280 Chapter III of the SEIA Law provides for dissemination and public participation in the EIA application and approval process.281 Figure 15 illustrates the process of application and approval for EIA.

279 Article 4, SEIA Law 280 Article 10.2 , SEIA Law. 281 Also see http://www.eia.nl/en/countries/sa/peru/eia.

Submission

• application

Classification

• catorgizetheaction

Review

•ReviewtheEIA

Resolution

• approveordisprove

Monitoring

• reporting


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Figure 17: Application and Approval Process of EIA

With regard to the EIA process in the mining sector, the Ministry of Environment regulates monitors and guides the implementation of EIA,282 DGAAM under MINEM approves Environmental Impact Statements283 while the SENACE under the Ministry of Environment is responsible for the review and approval process for projects under Category III. Monitoring and enforcement in the mining sector is governed by OEFA under Article 8 of the SEIA law. Recently, the time frame for approval of EIA has been reduced under Article 21 of Law 30230 from 120 days to 45 days in a bid to make the process pro-investment. However, in practice the timeline is not as clear as prescribed by the law.284 Corruption risks may arise with respect to the environmental impact assessment that may in some instances lead to illegal environmental practices.285 For instances governmental officials may loosen the review standards of the environment impact study and approve the same on lower standards. Furthermore, the enforcement and thus the effectiveness of EIA is often weak due to mismanagement and neglect by the officials, especially against the overarching policy of appearing pro-investors to attract investment in the sector.286 An illustration is the reduced time period for approval of the EIA which may relegate the approval process to a mere formality while exposing the process to increased risk of corruption. Secondly, regulatory authority along the EIA approval and enforcement process spreads among various institutions with overlapping responsibilities. In addition, environmental protection authorities face more challenges in balancing political and economic power with sustainable development objectives. The overlapping and often inconsistent scope of responsibilities entrusted in various organs under 282 SEIA Regulation, Art. 7. 283 SEIA Regulation, Art. 12.2. 284 Capstone 2015, page 151. 285 See https://eia-international.org/how-corruption-is-poisoning-the-global-environment. 286 See http://www.globalpolicyjournal.com/blog/05/03/2013/improving-environmental-impact-assessment-eia-effectiveness-some-reflections.

• ApplicationforEnvironmentalCertification• ApplicantshouldprepareapreliminaryassessmentScreen

• thecompetentauthorityreviewdocumentionandmakeaclassfication• ProjectswillbeclassifedintoCatagoryI,II,IIIunderSEIAlaw.Classfication

• incaseofsensitivelyprotectedareasorwaterresources,technicalopinionsfromcompetentauthoritiesshallberequestedTechnicalOpinion

• ForCategoriesIIandIII,theapplicantshallprepareTermsofReferencetoelaborateanEIA.• Thecompetentauthoritywillevaluateandmakedecisionsonapporval.TermsofReference

•ApplicantshallprepareEIAwithaddtionaldocumentssuchasaparticipationplan,andeconomicvaluationifrequired.AssessmentandReporting

• reviewedbycompetentauthoritieswithregardtothreecategories.• apublichearingisrequiredforcetaincategories.• Sectorministrieswillmakedecisiosn ontheenvironmentalcertification.

ReviewandDecisionmaking

• Reportingobligationstocompetentauthorities

Monitoring


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different ministries can result in a complex and unclear procedure for applicants and the conflicts of interest between overlapping institutions may hinder the EIA application process. Thirdly, institutions like OEFA face a lack of funding287 which increases the risk of corruption amongst officials who don’t have strong incentives or organizational oversight within the system, and opportunity to deviate.

VII. CRITIQUE: CORRUPTION RISK IN THE MINING SECTOR

The mining business in general, requires compliance with regulations and securing of specific permits. Thus, the applications process envisages frequent interactions with government officials as well as other counterparts, such as the local community. This part reviews the above-mentioned project timeline for mining exploration and operation, and analyzes the specific phases where mining companies become exposed to corruption risks.288 – Licensing Process –

Figure 18: Licensing Process

The largest corruption risk with government agencies occurs in the licensing process, regulated by several ministries. Since the Ministry of Energy and Mines is also in charge of revenue collection from mining companies, it does not have a motivation to delay the application review, Other ministries, such as agriculture or transportation, also have responsibilities for the licensing process, but they either lack incentives to hinder the project that is supported by the Ministry of Economics or do not have political power to do so. Still, it is a great responsibility for private sectors to obtain many permissions and licenses from several agencies, both in terms of time and cost. Bribery might appear as a rational option if there is an economic motivation for the private sector to avoid the “normal” permission process to reduce the opportunity cost, especially when the bribery benefit is larger than the bribery cost. In this context, an inefficient licensing process might promote economic motivation for corruption. For the purposes of this report, eight companies with a mining presence in Peru, were interviewed about the significant systematic inefficiency in licensing. A majority of these companies reported inefficiencies in the procurement of authorizations for water usage and the certificate of non-existence of archeological ruin.

287 Columbia School of International and Public Affairs Report, Mining in Peru: Benefitting from Natural Resources and Preventing the Resource Curse Capstone Workshop – Spring 2015, 155 (2015) available at https://sipa.columbia.edu/sites/default/files/Capstone%20-%20Peru%20(25%20June%202015)_FOR_PUBLICATION.pdf. 288 During March 2016, the team conducted the interview with 8 mining companies, including domestic and international. All companies answered the question requesting confidentiality.


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– Water Authorities – License for water usage is issued by the National Water Authority (ANA),290 River Basin Authority (AAA)291 and Local Water Authority (ALA).292 During the licensing process, most of the companies communicated with AAA and ALA. It is unpredictable how long this process takes and it often ends up longer than expected.293 The companies mentioned that the strictness of the review varies depending on the individual officers. – Certificate of Non-existence of Archeological Ruin – A Certificate of Non-existence of Archeological Ruin (CIRA)294 is issued by the Ministry of Culture.295 In order to prepare the application document, mining companies have to hire a consultant specialized in archeological studies. However, as communicated by some interviewees, the level of expertise of the specialist varies and the interpretation of the definition of “ruin” also depends on the perception of the consultant, thus, it is challenging to find experienced consultants in Peru. – EIA in the Stage of Regional Government – Arequipa regional government (“GORE”) has only eight people are in charge of the review of the EIA.296 In Arequipa GORE, currently they are processing 16,976 EIA applications and in 2015, 18 applications among them have been processed.297 Since most of the tax income from the mining project cannot be used for operational costs, including the personnel for the EIA review, the capacity of the government tends to be insufficient to the work they receive.

290 Autoridad Nacional del Agua. 291 Autoridades Administrativas del Agua. 292 Autoridades Locales de Agua. 293 As gathered from meeting with confidential source in Peru dated March 18, 2016. 294 Certificados de Inexistencia de Restos Arqueológicos 295 http://www.cultura.gob.pe/es/comunicacion/noticia/ministerio-de-cultura-disminuye-tiempo-de-emision-de-los-certificados-de. 296 Arequipa Regional Government (GORE). Personal interview. 16 March2016. 297 Ibid.


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CANON TAX299 In Peru, half of the corporate tax from mining companies is distributed to the subnational governments where the minerals are extracted. This transfer is called “canon” and half is retained by the central government. Canon is distributed to regional and local governments in proportions determined by the Ministry of Economy and Finance based on population and basic needs criteria (Article 2 of the Law no. 28322). Canon is distributed exclusively to the regional and local governments where the minerals are extracted. Subnational governments are not obliged to invest canon tax resources in the communities that are mostly affected by mining activities. According to the regulation, the canon and royalty revenues can only be used to invest in public infrastructure (75%), in the maintenance of public projects (up to 20%) and in the preparation of investment profiles (up to 5%). For the regional government’s usage of canon tax revenue, the regional government shall submit the feasibility study for the investment. There are three major issues. First, the regional government is not allowed to use canon tax revenue for the feasibility study. Second, the contractor shall be a local company registered in the region concerned, which may not have the knowledge or experience. Third, it shall be used for the project, capital investment, but not operational expense, such as human resources. As an example, in 2013, regional governments spent 76% of their resources and local governments spent 61% of their available resources. Most of the regional governments have not fully consumed their canon budgets.

Figure 19: The distribution of the Canon Tax300

299 Jane Korinek, Managing the Minerals Sector: Implications for Trade from Peru and Colombia, OECD Trade Policy Papers, No. 186, OECD Publishing, Paris, 30 (2015) p.29 300 Ibid.


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Figure 20: Share of the budget expended by region, 2013.

– Communication with Local Community –

Notwithstanding the importance of engagement with communities from the perspective of corporate risk management,301 some companies do not have sufficient know-how for community management, especially in terms of drafting an agreement on social compensation. While a written agreement without clear definitions and format creates potential for conflicting interpretations of the agreement, professional legal drafting may conversely make the document inaccessible to local communities.302 The format of the agreement should be legally sound but accessible to lay readers as well. Companies declined to elaborate on the manner in which they arrived at such a golden median, in their agreements.303 – Procurement Process –

301 More information detailed in the section of social license 302 As gathered from meeting with confidential source in Peru dated March 18, 2016. 303 One of the international attempts is Negotiation Portal (http://negotiationsupport.org). This internet platform supports host countries in their planning, preparation for, negotiation, monitoring, and implementation of complex investment projects. However, their approach is focusing the needs of the government, rather than the needs of corporates.


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Local content requirement regulation in Peru is not perceived as an extraordinarily onerous burden among mining companies.304 However, as a part of social compensation, mining companies tend to unofficially hire a local subcontractor to design and build the infrastructure that is requested as compensation by the community or government.305 It may be noted that the ex-mayor of Arequipa, Juan Manuel Guillem, was arrested and accused of corruption because in his public bridge project “La Joya”, the price charged for the project was three times higher than its original price.306 – Revenue Distribution Process –

– Tax Consumption Process – A similar corruption problem occurs in the use of canon tax. As mentioned above, the regional governments do not have complete authority to determine the allocation and use of the canon tax. Instead regional governments are required to seek permit from the central government by submitting the feasibility study report for the allocation and use of the tax. Since the regional governments lacks capacity or budget to develop the feasibility study on its own, the same is required of the mining companies to develop. This tax use process results in (1) unofficial reliance of the regional government on the mining company in terms of developing the feasibility study, (2) corruption in the tender process, and (3) weak regional governments (since tax cannot be used for capacity building of the regional government.)

- To promote transparency in the process, the Government of Peru should publish information

related to grant of mining concession and licenses, in respect of the concession or license holders including payments to government entities at different stages of the application and approval process. Although Peru is a member of EITI, it is nevertheless imperative for the government to promote publication of all information to increase public accountability of mining processes.

- The Government of Peru should address the overlapping of functions, uncertainty in scope of authority and complexity among different government agencies. For instance, the three agencies responsible for water issue (Autoridad Nacional del Agua, Autoridades

304 As gathered from meeting with confidential source in Peru dated March 18, 2016. 305 As gathered from meeting with confidential source in Peru dated March 18, 2016 306 http://elcomercio.pe/peru/arequipa/juan-manuel-guillen-investigado-bajo-arresto-domiciliario-noticia-1824023.

–Recommendation– Increase Government Transparency and Monitoring


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Administrativas del Agua, and Autoridades Locales de Agua) should jointly review the application review procedure including in relation to the process of review of applications and the review period for each application. Furthermore, it is recommended that the duties and responsibilities of governments and agencies of each level should be certain and clear, lessening the influence of some departments in comparison to others.

- The Ministry of Energy and Mines should organize the public hearings to facilitate a transparent and efficient process with optimized timeframes for application review.

- The Ministry of Energy and Mines should support capacity building of regional governments so as to equip and enable them to process the EIA applications at least within one year of receipt from applicants. Furthermore, capacity building should include increasing the personnel employed for reviewing EIA’s, providing technical training regarding on how the EIA should be assessed, clarifying the format of EIA applications. Such measures would make the application process more efficient for applicants and provide sufficient tools to monitor implementation of the concession agreement.

- The Ministry of Finance should review the regulation governing the allocation and use of canon tax and should amend the same as to permit the regional government to use the tax in preparing feasibility studies for the infrastructure project applications to the Ministry of Finance.

VIII. FACTORS THAT FACILITATE CORRUPTION The development of the mining projects in Peru should not be examined in isolation. Mining in developing countries impacts nearly all facets of the country, including governance. Qualitative research by UKAid in 2015 notes that “countries rich in natural resources also tend to be highly corrupt and poorly governed, in part because of the dynamics and incentives extractive resources tend to generate for the ruling elites.”307 Their findings indicate a certain pattern related to resource-rich countries that entail lower accountability standards and disconnect between the state and communities. Political elites “command vast patronage networks while remaining indifferent to the population at large.”308 The mining companies operating in such countries face “perverse incentives to engage in corrupt behavior, including, for example, the bribing of officials for contracts.”309 While these research findings are relevant and useful in understanding broad impacts of the mining sector in developing countries, this description is too simple to apply to Peru. Our research reveals an additional layer that has not been examined in context of Peru and which heavily influences the concept of corruption: provincial or regional government. The decentralized nature of Peru may explain certain corrupt activities, though the correlation does not necessarily suggest causation. In one research study, Christian Lessman and Gunther Markwardt note that the relationship between decentralization and corruption is not simple or

307 UKAid, Why Corruption Matters: Understanding Causes, Effects and How to Address Them, p. 24 (2015) available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/406346/corruption-evidence-paper-why-corruption-matters.pdf. 308 Ibid. 309 Ibid, p.25.


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linear. Rather, it depends on the “effectiveness of efforts to monitor bureaucrats’ behaviors.”310 They argue that the degree of freedom of press indicates the effectiveness of monitoring political activities. Based on our research in Peru, there is freedom of press in major cities. However, the more remote regions, especially those in mining regions, have access to media (primarily radio) that is highly biased. This may explain in part of why decentralization in Peru has led to certain corrupt tendencies. The leading example of corruption in Peru as evident by our qualitative interviewing, is regional government officials deliberately seeking positions in office to access and potentially appropriate funds from mining activities allocated by the national government, that are in fact intended for public services. As noted earlier, allocating considerable sums of money to an ill equipped and inefficient regional government results in increased opportunities for corruption. Similar to Lessman and Markwardt’s argument, it appears that there is a lack of monitoring of these regional offices.311 Interviews with national government officials in Peru, revealed disconnect between the anticipated uses of allocated funds to regional government and their actual utilization. A lack of capacity, planning and foremost lack of coordination and guidance between the national and regional offices, further bolsters the opportunity for corruption in remote mining regions.312 It is important to note that government offices are not innately corrupt; rather, the combination of the lack of capacity and knowledge on how to deal with such large sums of money and decentralized nature of government result in increased opportunities for corruption. IX. SOCIAL IMPACTS OF CORRUPTION Lack of capacity and inefficiency of regional governments in Peru has resulted in unintended consequences for the inhabitants of those regions. Essentially, it appears that funds intended for public services are misappropriated resulting in little or no provision of public facilities and development projects in the mining regions. A lack of benefit sharing breeds discontent amongst local populations who are excluded from the benefits of mining activities in their territories. Furthermore, it appears that communities in remote regions have little or no expectations of the regional government. In our interview relating to provision of public services with a community leader in Peru the community leader responded, “What regional government?”313 It appears that in remote areas where mining activities occur there is virtually no presence of any regional government. There are no regional offices in such areas and official visits are usually confined to election campaign matters. As a result, local communities look towards the mining companies who are present in their territories with their demands and benefit sharing from ongoing mining activities. The inhabitants of remote regions are not necessarily concerned with who provides services or benefits of the mining activities. They only seek to share benefits of the mining activities in their territories and to prevent adverse impacts to the surrounding environment from mining activities. Instead, they see that their lands are utilized; often their water sources are contaminated while 310 Christian Lessmann & Gunther Markwardt, One Size Fits All? Decentralization, Corruption, and the Monitoring of Bureaucrats, World Development pp. 631-646 (2010). 311 Notes from meeting with confidential source c and Acevedo from the Ministry of Culture. 312 Paraphrased interviews with Acevedo from the Ministry of Culture; Trivelli the ex-minister; and Source from Cajamarca. 313 Interview with Pedro in Cajamarca.


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they receive no compensation for their losses. In sum their expectations are fairly low. Some seek personal gains, while all in all it appears that the public services requested by the people are very basic, such as the building of roads so that people can commute more easily from their homes to the city; building schools and facilities, such as kitchens and bathrooms; and employment at the mining company to supplement their income.314 Misappropriated funds at the regional level may explain why local communities turn to the companies to actualize these needs. Other than absence of regional government in mining areas, local communities turn to companies because they lack the information or knowledge of how funds are distributed. Simply seeing mining equipment, staff and infrastructure, can indicate that they have the capacity to fulfill certain public services. Since local communities have no resort to or expectation from the regional owing to their virtual absence they instead turn towards mining companies with active presence in their territories. In Peru, it is difficult to measure the degree of corruption and its impact because the lack of access to local offices. While national government officials and local communities indicate the lack of regional governance and its ineffectiveness, we were unable to get first-hand accounts from local officials to corroborate these claims.

As mining projects are by definition long-term with lasting footprints, comprehensive solutions are necessary to ensure the success of mining project while protecting interests of the communities and government. In order to address the impacts noted, we reiterate the importance of equitable distribution of benefits and establishing a triangular relationship between the government, the company, and the community.315 The concept of triangular relationship has been detailed in the social license section of this report.

314 Interview notes from Source A in CJA 315 Refer to Social License to Operate Section in this report.

– Recommendation – Equal Transparency, Reporting and Monitoring Among Involved Parties.


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Annex 1 New case investigation process: from auditor’s report to trial

Fiscalia Suprema

Case heard by Supreme Court

Cases involving high-ranking public officials with

constitutional privileges

Comptroller General’s Office

Coordinator of anticorruption procedures

Complex cases of national importance

National anticorruption prosecutors

Case heard by National Criminal Chamber

Cass of lower complexity Regional criminal

prosecutor (if no anticorruption prosecutor in region)

Regional anticorruption prosecutor

Case heard by regional court

Case heard by anticorruption chamber of regional court

Blair Cameron, Battling a Cancer: Tackling Corruption in Peru, 2011 – 2014, Princeton University (2015) available at https://successfulsocieties.princeton.edu/sites/successfulsocieties/files/BC_AC_Peru.pdf


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Annex 2

Jane Korinek, Managing the Minerals Sector: Implications for Trade from Peru and Colombia, OECD Trade Policy Papers, No. 186, OECD Publishing, Paris, 30 (2015) available at http://www.oecd-ilibrary.org/docserver/download/5jrp6wrc2r7l.pdf?expires=1459785743&id=id&accname=guest&checksum=45F8FC29096BE70DCDF342BE1EC99128


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Annex 3

Distribution of canon and royalties in Peru (2014) Jane Korinek, Managing the Minerals Sector: Implications for Trade from Peru and Colombia, OECD Trade Policy Papers, No. 186, OECD Publishing, Paris, 31 (2015) available at http://www.oecd-ilibrary.org/docserver/download/5jrp6wrc2r7l.pdf?expires=1459785743&id=id&accname=guest&checksum=45F8FC29096BE70DCDF342BE1EC99128


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III. The Trans Pacific Partnership Treaty: Boon or Bane for Peru’s Indigenous


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I. THE TRANS-PACIFIC PARTNERSHIP TREATY: BOON OR BANE FOR PERU’S INDIGENOUS? GENERAL INTRODUCTION– Understanding Peru’s Reasons for Signing Investment Treaties –Peru currently has 29 bilateral investment treaties in force and is a signatory to 27 other investment agreements, including the TPP.316 Under the Constitution of Peru, treaties formalized317 by the state become national law.318 This Constitutional provision applies to investment treaties and trade agreements. An investment treaty can also impact Peruvian law during treaty negotiation, as it is possible that Peru would draft a new law, or amend existing laws as part of the negotiation process. For example, negotiations during the Peru-United States Trade Promotion Agreement hinged upon the Peruvian government’s promise to adopt legislation protecting labor rights, the environment, and indigenous communities.319 Similar provisions exist in the TPP. With 29 other bilateral investment treaties ratified and pro forma legislation already enacted as part of these investment treaties, it may be that new investment treaties do not place many new requirements on the Peruvian government. In this light, Peru may view the TPP as a little more than a political tool. The decision to enter into multilateral and bilateral investment treaties arises from the Peruvian government’s desire to cultivate economic and political relationships with other countries, as well as to assure foreign investors of the country’s low political risk profile.320 Signing investment treaties is not a government response to direct pressure from private industry, which generally operates without regard to whether or not an investment treaty exists.321 For example, Rio Tinto is a major investor in the mining sector in Peru, and Rio Tinto mentions only asset quality and cost considerations in its investment strategy.322 There may be a slight exception in respect of the pharmaceutical industry,323 but most other industries (especially those in the extractive sector) make investment decisions in a country based on the merits of economic realities rather than trade laws.324 The Peruvian government has instituted an economic policy that reflects its desire to attract international investment. First, the national debt is quite low at 23.06% of GDP in 2015325 and the country has received an investment grade credit rating from all the major agencies.326 Expropriation risk of a country prima facie tends to have an inverse linear relationship with a country’s GDP growth327 and is more closely related to a government’s ideology and a country’s debt levels.328 Peru’s investment-friendly government

316 http://investmentpolicyhub.unctad.org/IIA/CountryOtherIias/165#iiaInnerMenu. 317 Chapter 11, Article 56 of the Constitution of Peru: Treaties must be approved by Congress before their ratification by the President when dealing with human rights, the nations sovereignty, and financial obligations among other things. 318 Constitution of Peru, Chapter 2, Article 55. 319 http://www.coha.org/ramming-the-matter-home-peru-us-fta-rushed-diluted-and-finagled/. 320 EY Report - Peru’s Mining & Metals Investment Guide 2015/2016, p. 18 (2016) available http://www.ey.com/Publication/vwLUAssets/Gu%C3%ADa_Minera_2015-2016/$FILE/EY-Peru-mining-and-metals-investment-guide-2015-2016.pdf 321 During the course of our research we interviewed a number of major foreign mining companies and mining sector consultants. These interviews included direct questions as to whether or not bilateral and multilateral investment treaties were part of a company’s decision to operate in Peru. All interviewees answered these questions in the negative or with a great deal of doubt. 322 http://www.riotinto.com/aboutus/strategy-5006.aspx. 323 The economic merit of selling a drug is based on monopoly granted by patent. Patent rules are a major subject of the TPP. See http://www.reuters.com/article/trade-tpp-peru-idUSL1N12715620151007 324 Based on interviews conducted in Peru dated March 15-18, 2016. 325 http://countryeconomy.com/national-debt/peru. 326 http://www.tradingeconomics.com/peru/rating. 327 Not per capita GDP 328 MIGA Report, World investment and political risk, p. 48 (2013).


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and low debt levels underscore a low risk environment. It is important to note, however, policy decisions benefitting a country’s macroeconomic fundamentals does not ensure a fair distribution of new wealth. Income inequality is particularly apparent in some indigenous communities, where basic services are not available. Second, Peru has adopted a number of laws to protect foreign investors. These laws are laws written and enacted by the Peruvian government, rather than laws adopted via international treaties. They overlap with some controversial components of the TPP, meaning that some concerns with the TPP are in fact concerns with Peruvian legislation:

• Article 63 of the 1993 Constitution stipulates that foreign investors have the same rights as national investors.329

• The only Constitutional restriction in respect of foreigners is that they cannot acquire or possess, within 50 miles of the border, mines, lands, forests, water, fuels and energy sources, unless an exception is declared by Supreme Decree based on a public necessity clause or because of national interest.330

• In respect of the mining sector, companies which are starting or carrying out mining operations over 350 MT/day and up to 5,000 MT/day, as well as those having investment programs amounting to US$2,000,000, or the equivalent in domestic currency, shall enjoy tax and administrative stability conditions331 for a 10-year term. This does not apply to new taxes as long as they do not increase the effective tax rate by 200 bp.332

• According to the Constitution of Peru, any expropriation requires Congress to pass a specific act and all expropriations must be compensated at fair market value.333

It should also be noted that domestic pressure about free trade does exist, but to date, anti-TPP protests have numbered in the tens to hundreds only.334 Further, most of the current presidential candidates are in favor of the TPP,335 and the economic benefit-cost analysis of free trade is complex enough to be beyond the grasp of normal political debate. – Negotiation Mechanics Surrounding Investment Treaties – TPP negotiations were conducted without public comment until the final document was complete.336 Treaty negotiations were conducted in secret because it was felt that full transparency could interfere with the negotiation required to complete a deal. For example, probing the limits of what each party finds acceptable would be virtually impossible if every word was subject to public scrutiny. Nevertheless, the TPP and other investment treaties contain provisions that directly impact groups that did not participate in the negotiation process. The trade ministry of each party nation leads and conducts the actual negotiations. Interest groups and business representatives may see and consult on draft proposals, but they must sign confidentiality agreements and are locked out of the negotiations themselves.338 These consultations are at the full discretion of the trade ministry. An interview with a large Peruvian NGO that

329 Estudio Echecopar, member firm of Baker & McKenzie International. Doing Business in Peru Report. p. 4 (2016) 330 Ibid, 5 331 Benefits included in the Tax Stability Agreement are: (i) tax stability (only taxes) only with respect to the taxes in force as of the date of the investment program approval; not applicable to any tax to be created in the future (the effective Income Tax rate plus two additional percentage points) (ii) free disposal of the currency generated from their exports in Peru or abroad, (iii) free commercialization of mineral products in Peru and abroad (iv) free domestic currency exchange (v) no exchange rate discrimination (vi) stability of special systems, when these are granted with respect to tax refund, temporary admission and other similar situations, and (vii) stability of the administrative system (rights and obligations of the holders of mining activities). 332 Doing Business in Peru, 64. 333 http://www.state.gov/e/eb/rls/othr/ics/2013/204714.htm. 334 http://perureports.com/2016/02/26/hundreds-march-against-trans-pacific-partnership-in-lima/. 335 http://perureports.com/2016/02/04/after-formal-signing-peru-looks-to-ratify-trans-pacific-partnership/. 336 Compared TTIP, where it seemed to have more transparency. 338 http://www.aflcio.org/Issues/Trade/Fast-Track-Legislation/Labor-s-So-Called-Seat-at-the-Table-at-TPP-Negotiations


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specializes in trade and globalization issues stated that it had no input on the negotiation process and relied on Wikileaks for information on the TPP. Interviews with local communities indicated that Peruvian indigenous peoples were generally not part of the negotiating process. Yet, it is often their land upon which mining activity occurs. The TPP addresses indigenous rights, though without the indigenous people’s input during negotiations. For example, article 29.8 states that, “subject to each Party’s international obligations, each Party may establish appropriate measures to respect, preserve and promote traditional knowledge and traditional cultural expressions.” While it would presumably be legal for the government to expropriate an investment that inhibits the cultural expression of an indigenous group, the government would also be obligated to pay the full market value of the seized property. In the case of a mining operation, that obligation could cost billions of dollars. Such cost could tempt the Peruvian government to ignore indigenous rights, as indigenous communities often do not have the knowledge or legal representation to ensure their rights. The TPP could have had more specific language on indigenous rights that conflict with mining operations had the negotiations been more transparent and included indigenous community input. TPP negotiations have been concluded, but the agreement has not been ratified by member states. Affected groups may express concerns with the TPP, but there is now a certain momentum to the agreement.339 There is pressure to ratify because of the difficulty and length of the negotiations. Moreover, there may not be enough time for groups to organize, read and understand the agreement, strategize, and object to those parts of the treaty they find unacceptable. An isolated indigenous community, far from the capital, with no lawyers and no representation in the government will have difficulty being heard. Most importantly, opposition to the agreement can only attempt to pressure the government not to sign. No adjustments are possible without redrafting and resubmitting the agreement to all parties for renegotiation. Consequently, those opposed to the TPP have a more difficult task. Pressuring Congress not to ratify the entire agreement is not the same as asking for adjustments to specific sections. Once concluded, investment treaties do not provide any mechanism to mitigate the financial and other impact on impacted parties, such as indigenous communities. The TPP elevates foreign investor rights to the same level of national investors through non-discriminatory and expropriation clauses.340341 Affected communities in the areas of mining operations are not given explicit recourse in the Exceptions chapter of the TPP or any other investment treaty.342 Rather, the language protecting their cultural heritage rights and the right not to have their environment polluted is ambivalent. For example, the TPP encourages member countries to adopt “high levels of environmental protection,” while being warned “that it is inappropriate to establish or use their environmental laws in a manner which would constitute a disguised restriction on trade.”343 The TPP does not penalize environmental or cultural rights abuses. Such punishment is left to the member government. However, the TPP does penalize governments for impairing investment assets. Consequently, it exacerbates the imbalance of power between foreign investors and local citizens.

339 http://perureports.com/2016/02/04/after-formal-signing-peru-looks-to-ratify-trans-pacific-partnership/. 340 http://unsr.vtaulicorpuz.org/site/images/docs/annual/2015-annual-ga-a-70-301-en.pdf pg. 10 341 To be fair, these provisions are already accounted for in the Peruvian Constitution 342 “Subject to each Party’s international obligations, each Party may establish appropriate measures to respect, preserve and promote traditional knowledge and traditional cultural expressions.” TPP Article 29.8. 343 TPP Article 20.2.

– Recommendation – Make consultation with indigenous community representatives, NGOs, and other civil society groups during the drafting stages of investment treaties mandatory by law. (TPP Article 20.2)


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II. ARBITRATION DISPUTES AND FOREIGN INVESTMENT There are no international sets of rules that govern foreign investment. However, countries frequently adopt bilateral agreements and multilateral investment treaties to set operational parameters and policies for Foreign Direct Investment (“FDI”). These legal frameworks have the goal of reducing obstacles, providing legal protection for investments, and specifying how markets will function in host countries. Generally, they contain protection and guarantee clauses that ensure an investment-friendly atmosphere for foreign investors in host countries. Investment treaties, including the TPP, usually contain clauses that guarantee foreign investors fair and equitable treatment, different protection clauses for the investment, national treatment, most favored nation treatment, protection against expropriation and indirect expropriation, no limitations on the transference of funds out of the country, and finally procedures for Investor-state Disputes Settlement (“ISDS”), in which the parties generally choose an international arbitral tribunal.346 In the following paragraphs, an analysis of the “arbitration clause” that allows foreign investors to use international arbitration tribunals will be done. This topic is of special relevance when addressing International Investment Agreements (“IIA”), given that international arbitration tribunals have become the most used mechanism to interpret the contents of IIAs and to solve the disputes that emerge from their application.347 – International Arbitration Tribunals –International arbitration as a mechanism of dispute resolution differs from the traditional judicial dispute mechanisms that states have. First, in arbitration, unlike the judicial system, the parties may choose their own adjudicator. It is also possible to choose arbitrators that are specialized in the subject matter of, or the sector in which, the dispute falls. Having this expertise, arbitrators are better able to understand the problem, take less time to arrive at a decision, and thus in theory, issue a reasonable award. Unlike national judicial systems, arbitral tribunals are less formal and allow more flexibility: the parties can decide by mutual agreement changes in the procedure, establish an ad hoc regulation, avoid certain stages common to a litigation process, and if the tribunal allows, argue some issues again. There are different institutions that may serve as arbitral tribunals; parties may opt for one by specifying so in the applicable bilateral or multilateral investment treaty or in the investment contract. The most common arbitral institutions are: the International Centre for Settlement of Investment Disputes - World Bank (ICSID); The United Nations Commission on International Trade Law (UNCITRAL); The Arbitration Institute of the Stockholm chamber of Commerce (SCC) and the International Chamber of Commerce (ICC).

346 Detailed information about the overall structure and modes of IIAs in: UNCTAD. 2004. International Investment Agreements: Key Issues. Volume 1. Chapter 2. International Investment Agreements: Flexibility for Development, pp. 53-110. Available at http://unctad.org/en/Docs/iteiit200410_en.pdf. 347 Ibid. p. 229. (“Dispute Settlement: Most Multilateral, regional and bilateral instruments incorporate procedures for compulsory third party dispute settlement, even where, as in the case of the Multilateral Agreement on Investment, a distinction is made between investor-state disputes and state-state disputes, but, usually, recourse to compulsory third party settlements is provided for in each case.”)


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The disputes between investors and states that are most commonly solved in arbitration are associated with contract cancellations, alleged violations of contracts, revocations or denials of licenses or permits, legislative reforms, discrimination against foreign investors, regulation of water tariffs, taxation and environmental matters.348 All of these issues are relevant for conflicts that arise in the extractive industry, which is important for countries whose income depends on natural resource extraction. – Advantages and Disadvantages of Arbitration –The following section focuses on those advantages and disadvantages of arbitration, in the context of issues relating to the mineral industry, minority rights, and foreign investment. The features of arbitration which are specifically looked at are confidentiality, flexibility (as compared with judicial security), and costs. Investors often seek to solve disputes before arbitration tribunals because of the advantages that they represent. Among these are the efficiency and confidentiality of the decisions, and the flexibility and trust that investors have in the tribunals given that it (the tribunal) has been constituted by the parties themselves. Some investors argue that arbitration is the best option for conflict resolution, due to weak national judiciaries that do not offer enough guarantees for impartial and fair settlements. As was mentioned before, there is not just one body and regime for international arbitration, and thus financial awards are not homogeneous. This creates a problem of judicial security as different awards may be given for cases with similar features. The situation becomes more problematic given that the legislation that is applicable depends on what has been agreed upon in the contract, or treaty. Most IIAs allow for fully confidential arbitration. Confidentiality in the procedure and the arbitration awards or decisions is seen as an advantage for the parties. They would have the possibility to control what kind of information is public or private. However, this could also be problematic, particularly from a public policy perspective. In relation to vulnerable communities, a problem emerges with access to information. Some of the decisions that are taken in arbitration may not be directly related to the vulnerable sector of the population. However it may have consequences for them. The problem is more severe in developing countries, where mechanisms to protect vulnerable community rights are weak. The lack of information hinders the ability of vulnerable communities to enforce previous agreements with the state accounting for their concerns.349

348 Victoria Tauli- Corpuz, Report of the Special Rapporteur of the Human Rights Council on the rights of indigenous peoples on the impact of international investment and free trade on the human rights of indigenous peoples, United Nations General Assembly. August 7th, 2015. Item 70 (a) of the provisional agenda http://unsr.vtaulicorpuz.org/site/images/docs/annual/2015-annual-ga-a-70-301-en.pdf 349 According to Schill: “The lack of transparency and of third-party participation pose a challenge to the openness and transparency the principle of democracy requires of the exercise of public authority and the possibility for everyone affected to have a voice in decision making through participatory rights. Finally, the protection of fundamental or human rights is affected by ISDS to the extent arbitral tribunals extend investor rights to the detriment of competing non-investment concerns, such as the right of public health, the right to water, or the rights of indigenous people.” Stephan W. Schill, Reforming Investor-State Dispute Settlement (ISDS): Conceptual Framework and Options for the Way Forward, E15Initiative. Geneva: International Centre for Trade and Sustainable Development (ICTSD) and World Economic Forum, p. 3 (2015) available at http://e15initiative.org/wp-content/uploads/2015/07/E15-Investment-Schill-FINAL.pdf


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The decisions of arbitral tribunals also affects disputes about the infringement of rights of local communities, broadening the scope of arbitration, to include not only address disputes related to investment contract interpretation, or application of a treaty, but also the analysis of human rights and indigenous peoples’ rights.350 Potentially, this dynamic could set legal interpretations that limit the national and regional policy capabilities.351 In terms of costs, it would be possible to consider that international arbitration is less expensive than national courts, particularly in relation to time. This could be explained by the fact that arbitration contemplates only one instance. However, such an argument could be refuted by the relatively high costs of specialized law firms and arbitrators that the process demands.352 The potential growth of disputes concerning investment protection implies high costs for developing countries, on account of the expense associated with participation in arbitration, including fees and administrative costs, and potential negative settlements for the state (awards). A Peruvian journal353 notes that expenses for the state’s defense in four arbitrations disputes (Renco Group, DP World Calla SRL, Eceteco International Company S.L and Bear Creek Mining Corporation) had a cost of 16 million dollars, most of which was paid to two international law firms (White & Case LLP and Sidley & Austin LLP). In those cases the investors sued the Peruvian state for almost 2.2 billion of US dollars. This is more than the 2016 fiscal budget for social programs in the country. In that sense, the current UN Special Rapporteur on the Rights of indigenous peoples, Victoria Tauli-Corpuz’s statement, about how arbitration proceedings do not affect equally developed and developing countries appears to be true. Another example of this is that United States has never

350 According to Petersen: “Generally speaking, arbitrators in investment treaty disputes are not empowered to find that human rights obligations have been breached. As tribunals with limited jurisdiction, arbitrators are usually limited to determining whether a particular investment treaty protection has been breached. However, this does not mean that human rights law might not form part of the backdrop against which investment treaty obligations are read and applied. It has long been recognized that the lwa applicable to investment arbitrations typically encompasses international law (rather than simply the given investment protection treaty, and this could include other non-economic forms of international law.” Luke Eric Petersen, Canada. 2009. Human rights and Bilateral Investment Treaties. Mapping the role of Human Rights within Investor-state Arbitration. Rights and Democracy. International Center for Human Rights and Democratic Development. Is human rights law being raised in investment treaty lawsuits? p. 22 http://business- http://publications.gc.ca/collections/collection_2012/dd-rd/E84-36-2009-eng.pdf 351 Michael Mortimore consider a long-term risk the expansive interpretation to central concepts in IIAs that can have the effect of enormously increasing the dimension and nature of the exposure of host countries in existing IIAs…This can lead to legitimacy issues, such as policy paralysis or regulatory chill, which can translate into the host country’s partial or total loss of control over its own national developmental process… Governments become unwilling to undertake legitimate national regulation for fear of lawsuits from foreign investors. Thus, the caution required to manage carefully these IA_ISDS risks can significantly curtail national regulatory policy and in the process reduce the host government’s action in fields, such as health and safety, labor and employment, cultural heritage and the environment, among others. Alternatively, host governments in extreme circumstances may be forced to choose between honoring the obligations in their international investment treaties and contracts or meeting the legitimate needs of their citizens during crisis situations. Further analysis in: Mortimore, Michael. Santiago, Chile, October 2010. International arbitration based on ISDS clauses in international investment agreements: challenges for Latin America and the Caribbean. Cepal. The risks of IA-ISDS clauses and the challenges facing host countries. p. 23-43. http://repositorio.cepal.org/bitstream/handle/11362/4586/S0900333_en.pdf?sequence=1 352 Further information: Lexis PSL document. The pros and cons of arbitration. https://www.mayerbrown.com/files/News/04165fd5-5165-41ea-bb6f-19d9235c171d/Presentation/NewsAttachment/7e531e5e-4040-4251-b1a8-1d4b6168c99b/Practice%20Note_Duncan_Pros-Cons-Arbitration_oct12.pdf 353Magali Zevallos. Peru. January 2016. Peru spends more than 53 million soles in legal defense for International Arbitration. Latin American Agency of Information, available at http://www.alainet.org/es/articulo/174820


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lost an investment arbitration, and thus has never been required to award compensation to any investor.355 This emphasizes the importance of developing better strategies to confront disputes in international arbitration. – Peruvian National Framework in Relation to Arbitration –The Political Constitution of Peru states that national courts should be used to solve disputes between the state and investors except in the case of foreign investment contracts. In those cases, national officials can opt to take the disputes to national arbitration tribunals or, in case the foreign investment is covered by a multilateral or bilateral agreement, to an international arbitration pursuant to the concerned bilateral or multilateral investment agreement that is agreed upon. The Legislative Decree 662 (Law of Promotion of Foreign Investment)356 and the Legislative Decree 757 (Framework Law for Private Investment Growth) reiterate what has been stated in the Constitution about investment disputes, without limiting the rights of a party to resort to other legal options.357 Additionally, the Peruvian state is party to the ICSID Convention since 1993 (Legislative Resolution 26210).358 III. PERU AND THE SICRECI STATE COORDINATION AND RESPONSE SYSTEM FOR INTERNATIONAL INVESTMENT DISPUTES In response to potential international investment disputes, the Peruvian government adopted the Law 28933 of 2006, which establishes a system of coordination between the different levels of the state to respond effectively to potential arbitral disputes. The goal of the Sistema de Coordinacion y Respuesta del Estado en Controversias Internacionales (“SICRECI”) is to compile the relevant information of the case in order for it to be available to those that are responsible for the development of the state’s defense strategy in international investment disputes. The system aims to coordinate the public sector stakeholders and to alert them to possible future disputes. Additionally, it is responsible for the costs that are generated by the public entities involved in a dispute. Finally, SICRECI defines criteria that crosscut different institutions of the state in order to standardize the actions related with potential settlements.359

355 Victoria Tauli- Corpuz, Report of the Special Rapporteur of the Human Rights Council on the rights of indigenous peoples on the impact of international investment and free trade on the human rights of indigenous peoples, United Nations General Assembly, (2015) http://unsr.vtaulicorpuz.org/site/images/docs/annual/2015-annual-ga-a-70-301-en.pdf 356 Title II. Legal stability of foreign investment. Article 16. From: http://www.sice.oas.org/investment/NatLeg/Per/dl662.pdf 357 Chapter three. Settlement of controversies related to investment. Article 48. 358 Further information of arbitration in Peru in: Amado, Jose Daniel. Ferraro, Cristina. Lopez, Clara Maria. Miranda and Amado Law Firm. The arbitration review of the Americas 2016. Section 2: Country chapters. Peru. In Global Arbitration Review. http://globalarbitrationreview.com/reviews/73/sections/273/chapters/2977/peru/ Also see Fernando Cantuarias, The Peruvian state and Investment arbitration (El estado peruano frente al arbitraje sobre inversiones). In Latin Arbitration Law: http://www.latinarbitrationlaw.com/el-estado-peruano-frente-al-arbitraje-sobre-inversiones/ 359Peruvian Ministry of Economy and Finance. What is the SICRECI: http://www.mef.gob.pe/index.php?option=com_content&view=article&id=345&Itemid=100264 Also: Ampuero, Ricardo, January 2013. Peru’s state Coordination and Response System for International Investment Disputes. Investment Treaty News. International Institute for sustainable Development –IISD. https://www.iisd.org/itn/2013/01/14/perus-state-coordination-and-response-system-for-international-investment-disputes/


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The Peruvian Ministry of Economy, through the Special Commission and the Technical Secretariat Finances, is the coordinator of the SICRECI. The Ministry of Economy and Finances performs the Technical Secretariat of the SICRECI. The Secretariat has the responsibility of writing all preliminary reports for the Special Commission and any information needed by the Commission to follow its responsibilities. It also keeps records of all the Special Commission meetings. The Special Commission is the representative of the Peruvian state in international investment disputes at all the stages of the process. It is responsible for: i) appointing the advisors that will support the case and participate in the defense; ii) defining the arbitrators that the Peruvian state selects; and, iii) approving the required budget for the defense and settlement of the disputes. This Commission is affiliated to the Ministry of Economy and Finances. Its permanent members are the Ministry of Economy and Finances, Minister of Foreign Affairs, Minister of Justice and Human Rights, and Proinversion (Agency of private investment promotion). Non-permanent members are: the Ministry of Foreign Trade and Tourism and other public entities that are part of the dispute. THE PITFALLS OF INTERNATIONAL INVESTMENT AGREEMENTS (IIA) One of the unintended consequences related with IIAs is their negative impact on the rights of minorities, such as indigenous peoples. Such consequences are generally related to violations of property rights over land, limitation of access to resources and environmental degradation.360 All of these show the limitation of the state’s capacity to protect vulnerable communities. This is aggravated particularly when governments confront dilemmas between the enforcement of the agreements in order to honor the treaties and attract investment, and providing services to local populations. 361362 For Victoria Tauli-Corpuz, IIA clauses providing for non-discriminatory treatment of investments, and guarantees against expropriation could conflict with the protection of the indigenous people’s land and cultural rights. If the rights of indigenous people over land are not made exempt from the application of the investment treaties, other regulation that protects their land through different legislation could be understood as obsolete. Clauses that limit

360 Abuses of Indigenous peoples’ human rights encompass: inter alia, violations of substantive rights, such as the right to life (for example, via direct violence resulting in death or environmental degradation), land and resource-development rights (vi forced displacement), cultural rights (via deprivation of land rights, which often undermines traditional belief systems and coherence community), rights to free expression (via violent repression), and key procedural rights recognized in the United nation Declaration of Rights of Indigenous Peoples (UNDRIP), in particular the right to prior consultation regarding – and free, prior, and informed consent to –development activities on indigenous land. In: Law Review 1755. April 8, 2016. Harvard The double life of International Law: Indigenous Peoples and Extractive Industries. http://harvardlawreview.org/2016/04/the-double-life-of-international-law-indigenous-peoples-and-extractive-industries/ 361 Kleinfeld, Joshua. April 2016. The double life of International Law: Indigenous Peoples and Extractive Industries. Harvard Law Review. Volume 129 Number 6. Remarks that: At least one reason extractive industries infringe on indigenous rights is the power imbalance between two international legal regimes, each of which aims to accomplish diverse ends, often by demanding that states take contradictory actions with respect to the same land and the same peoples. This power imbalance exacerbates already-existing power imbalances between indigenous communities, states, and investors, and affects the state’s choice of which regime to privilege in any given scenario. 362 Victoria Tauli- Corpuz, Report of the Special Rapporteur of the Human Rights Council on the rights of indigenous peoples on the impact of international investment and free trade on the human rights of indigenous peoples, United Nations General Assembly, (2015) http://unsr.vtaulicorpuz.org/site/images/docs/annual/2015-annual-ga-a-70-301-en.pdf.


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expropriation for foreign investment in IIAs could also compete with indigenous land claims, creating a scenario of potential conflicts, and limiting the capacity of the state to engage in redistributive land programs. Engaging in redistributive land programs that conflict with IIAs requires foreign investor compensation at potentially very high rates. The fiscal impact for the state increases the barriers to guarantee the rights of indigenous communities.363 Indigenous peoples are vulnerable to reductions in public funds and local governments could be affected in the context of national governments trying to finance settlements in disputes with international investors.364 – Conclusion –Investments treaties are the consequence of national policies which are centered upon economic growth, but are also accompanied with a negative impact on vulnerable populations. Attention is required when the potential negative effects of IIA could be aggravated by some of the problems directly associated with ISDS, as mentioned above.365 As seen above, the Peruvian state has a legal framework that favors the use of arbitration for investor-state disputes, and mechanisms to assert settlements, such as the SICRECI. Nonetheless, the government could seek ways to improve its effectiveness, particularly to avoid potential local social conflicts.

The Peruvian state should be proactively involved in international discussions with other similarly affected states, in order to fix problems faced on account of the ISDS system, thus leading to better global investment governance. In this respect the UNCTAD report set recommendations, such as further discussion on creating a standing international investment court and replacing ISDSs mechanisms by state-state dispute settlement366 or replacing it with domestic dispute resolution mechanisms.367

363 Ibid. 364 Ibid. 365 The last World Investment Report of UNCTAD, called for address concerns that would require reforms on IIA and investment dispute settlement. For them Investor-state Dispute Settlement suffers from a legitimacy crisis. “There are concerns that the current mechanisms exposes host states to additional legal and financial risks, often unforeseen at point of entering into the IIA and in circumstances beyond clear-cut infringements on private property, without necessarily bringing any benefits in terms of additional Foreign Direct Investments flows” UNCTAD 2015. World Investment Report. Reforming International Investment Governance. Pg. 143. http://unctad.org/en/PublicationsLibrary/wir2015_en.pdf 366 The types of disputes that could trigger a state-to state procedure need to be identified. state-to-state disputes can arise out of either the exercise of diplomatic protection on the part of the home state of the investor (though this is increasingly rare given the existence of ISDS provisions that give direct rights of action to the investor0 or as a result of a dispute over the interpretation or application of the IIA. UNCTAD. 2004. International Investment Agreements: Key Issues. Volume 1. Chapter 11. Dispute Settlement: state-state. p..315. http://unctad.org/en/Docs/iteiit200410_en.pdf 367 UNCTAD (2015) also recommends options to improve existing ISDS mechanisms by: Improving the arbitral process; Limiting investor access; Using filters for channeling sensitive cases to state-state dispute settlement and Introducing Local litigation requirements as a precondition for ISDS. It also suggests new elements to existing ISDS as: Building in effective alternative dispute resolution and Introducing an appeals facility (bilateral, regional or multilateral). UNCTAD. World

– Recommendation – Adopt a multi-stakeholder approach towards resolving issues created by the ISDS system.


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Using the SICRECI, the Peruvian government should include other stakeholders that are not currently involved in the discussion. They could invite the participation of institutions of the state involved in developing or enforcing human rights policy in addition to the Ministry of Justice, and enable participation of local communities in the regions that are part of potential disputes. This would lead to an increase in transparency, which, particularly in cases involving the extractive sector, would have a positive uplifting impact vis-à-vis vulnerable indigenous communities. They could systematize and establish a typology of reasons that cause investors to initiate disputes against the state. Furthermore, they could prepare a list of concerns that the government should be aware of when negotiating investment treaties. IV. A CLOSER LOOK AT THE ISDS PROVISIONS IN THE TPP– TPP and ISDS –Similar to other investment treaties, the TPP also provides for an ISDS system. Under the ISDS system, in the event of an ‘investment dispute’, an investor can sue the host country, in this case Peru. Procedure Section B of Chapter 9 of the TPP provides for the ISDS system. The TPP prescribes that the parties (i.e. the investor and the host country) first try and resolve their dispute through consultation and negotiation. This refers to non-binding third party procedures such as good offices, conciliation or mediation.368 In case a dispute is not resolved by such method within a period of six months from the date of receipt by the respondent of a written request, the claimant can initiate arbitration. The investor can sue the country for breaching any of its obligations under Section A of the TPP, an investment authorization or an investment agreement.369 Such arbitration can be conducted either under:

I. The ICSID Convention and ICSID Rules of Procedure for Arbitration Proceedings, as long as both the country of the investor as well as the host country are party to the ICSID Convention;

II. The ICSID Additional Facility Rules, provided that either the country of the investor or the host country is a party to the ICSID Convention;

III. The UNCITRAL Arbitration Rules; or IV. Any other arbitral institution or rules, as long as both the parties agree. Obligations of the Host Country The TPP confers certain rights on investors which are similar to those present in other BITs and FTAs. Through these rights, the host country – Peru in this context - is obligated to provide a stable and non-discriminatory investment atmosphere to an investor of another country. These provisions include:

Investment Report 2015. Reforming International Investment Governance. p. 162. http://unctad.org/en/PublicationsLibrary/wir2015_en.pdf

368 TPP, Feb. 4, 2016, Article 9.17. 369 TPP, Feb. 4, 2016, Article 9.18(1)(a).


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I. National treatment:370 By this provision, the Peruvian government371 is obligated to treat foreign investors no less favorably than it treats its own investors in a like situation. This is inter alia with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.

II. Most-Favored-Nation-Treatment:372 By this provision, the Peruvian government is

prohibited from treating foreign investors of one signatory country differently from foreign investors of another signatory country.

III. Minimum standard of treatment:373 The Peruvian government is obligated to treat

covered investments in accordance with applicable customary international law principles – which are ambiguous – but which also include treaty provided protections, such as the obligation to provide, fair and equitable treatment.

IV. Expropriation and Compensation: The Peruvian government is prohibited from

expropriating or nationalizing a covered investment either directly or indirectly, except: a. For a “public purpose”; b. In a non-discriminatory manner; c. On payment of prompt, adequate and effective compensation, and; d. In accordance with the due process of law.

– The Purported Benefits of Investment Treaties – Peru’s Free Trade Agreements (“FTAs”) cover approximately 94% of its exports as of the end of 2014.374 Investment agreements are perceived to be a catalyst for the increasing foreign investment in the country. Indicators of these can be seen at multiple places in Peru’s Business and Investment Guide for 2015/2016.375 The following have been cited as the benefits of investment treaties:376

I. The treaties obligate states to treat foreign investors in a neutral and non-discriminatory manner. This guarantees a positive investment atmosphere.

II. The treaties have led to a convergence of international standards, inducing Peruvian companies to improve their management and logistics practices.

III. These agreements have been considered as facilitating exports in non-traditional sectors. 370 TPP, Feb. 4, 2016, Article 9.4. 371 Which connotes the central, regional or local governments or authorities of Peru, and any person, including a state enterprise or any other body, when it exercises any governmental authority delegated to it by the central, regional or local government or authority of Peru (TPP, Feb. 4, 2016, Article 9.2(2)). 372 TPP, Feb. 4, 2016, Article 9.5. 373 TPP, Feb. 4, 2016, Article 9.6. 374 Ministry of Foreign Affairs, Peru, Ernst & Young, ProInversion, Peru’s Business and Investment Guide 2015/2016, at 66, http://www.investinperu.pe/RepositorioAPS/1/0/JER/GUIA_INVERSION/Peru_Business_and_Investment_Guide_2015_2016.pdf. 375 See ‘From the President of the Republic of Peru’, Ministry of Foreign Affairs, Peru, Ernst & Young, ProInversion, Peru’s Business and Investment Guide 2015/2016, http://www.investinperu.pe/RepositorioAPS/1/0/JER/GUIA_INVERSION/Peru_Business_and_Investment_Guide_2015_2016.pdf. 376 See Ministry of Foreign Affairs, Peru, Ernst & Young, ProInversion, Peru’s Business and Investment Guide 2015/2016, at 66-67, http://www.investinperu.pe/RepositorioAPS/1/0/JER/GUIA_INVERSION/Peru_Business_and_Investment_Guide_2015_2016.pdf.


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IV. By providing for an alternative system of dispute resolution, investors are assured of a neutral and competent adjudicatory forum, which can deliver justice in a timely manner. The investors are protected from the whims and fancies of a potentially biased judiciary of the state which they are suing.

V. The private system of dispute resolution precludes a diplomatic dispute between the state receiving the investment and the state of the investor.377

– The Reality of Investment Treaties – A majority of investment treaties are signed between developed and developing countries.378 Theoretically, under a treaty such as the TPP which has both developed and developing countries as its signatories, a developed country can be sued. However, in reality, a majority of investor-state claims are against developing countries.379 Often, the country also faces diplomatic pressure from the country of the investor.380 The developing country faces the prospect of paying a multi-million dollar (or even multi-billion dollar) award. Even if a claimant is a developed country, such claims are predominantly initiated by investors of other advanced countries.381 Eighty percent of all investor claims are also initiated by investors from advanced countries in North America and Europe.382 Investment treaties represent many disadvantages to states. We have set some of these out below:

a. Adverse impact on state sovereignty: A review of the ISDS chapter of most investment treaties reveals that most mandatory obligations are imposed on the state, and not on the investor.383 These obligations have been inserted in order to ensure a neutral investment climate to foreign investors. However, they disproportionately favor foreign investors, and limit a state’s decision-making authority. The ISDS system imposes a restraint on state sovereignty. This is in the following ways:

i. The lawmaking behavior of the state is affected by the obligations undertaken by

it in the various treaties signed by it. The state will adopt a preventative stance to preclude arbitration claims. A state can adopt legislations which are pro-

377Claire Provost and Matt Kenard, The obscure legal system that lets corporations sues countries, THE GUARDIAN (Jun. 10, 2015), http://www.theguardian.com/business/2015/jun/10/obscure-legal-system-lets-corportations-sue-states-ttip-icsid (last accessed on June 16, 2016). 378 U.N. GA, 70th Sess., Report of the Special Rapporteur of the Human Rights Council on the rights of indigenous peoples on the impact of international investment and free trade on the human rights of indigenous peoples, at 6, U.N. Doc. A/70/301 (Aug. 7, 2015). See also, Victoria Tauli- Corpuz, Report of the Special Rapporteur of the Human Rights Council on the rights of indigenous peoples on the impact of international investment and free trade on the human rights of indigenous peoples, United Nations General Assembly, (2015) http://unsr.vtaulicorpuz.org/site/images/docs/annual/2015-annual-ga-a-70-301-en.pdf 379 Victoria Tauli- Corpuz, Report of the Special Rapporteur of the Human Rights Council on the rights of indigenous peoples on the impact of international investment and free trade on the human rights of indigenous peoples, United Nations General Assembly, (2015) http://unsr.vtaulicorpuz.org/site/images/docs/annual/2015-annual-ga-a-70-301-en.pdf, at 8 (last accessed on June 16, 2016). 380 Claire Provost and Matt Kenard, The obscure legal system that lets corporations sues countries, THE GUARDIAN (Jun. 10, 2015), http://www.theguardian.com/business/2015/jun/10/obscure-legal-system-lets-corportations-sue-states-ttip-icsid (last accessed on June 16, 2016). 381 Victoria Tauli- Corpuz, Report of the Special Rapporteur of the Human Rights Council on the rights of indigenous peoples on the impact of international investment and free trade on the human rights of indigenous peoples, United Nations General Assembly, (2015) http://unsr.vtaulicorpuz.org/site/images/docs/annual/2015-annual-ga-a-70-301-en.pdf, at 8 (last accessed on June 16, 2016). 382 Congressional Research Service, “International investment agreements (IIAs): frequently asked questions”, 15 May 2015, available at http://fas.org/sgp/crs/misc/R44015.pdf., cited from the Special Rapporteur, Page 8. 383 See for instance, Chapter 10, US-Peru FTA, Chapter 10, and Canada-Peru FTA, Chapter 8.


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investment, to the exclusion of environmental, social, cultural and other considerations.384 The state will proclaim that this is ‘pro-development’.385 There will be a ‘regulatory chill’386 on “socially desirable action”.387

This effect of investment treaties can be seen clearly in Peru. There has been positive change – with the US-Peru FTA having prompted the creation of the Ministry of Environment in 2008.388 However, in contrast to this, there are a multitude of regulations which have weakened environmental compliances. For instance, in 2014 the Peruvian government passed a law that inter alia took away the Ministry of Power’s authority to establish nature reserves in mining areas, removed the Ministry of Environment’s jurisdiction over standards of quality of air, soil and water, and reduced penalties for environmental violations.389 The laws – aimed at accelerating ‘development’ – have been widely criticized by many, including Peru’s citizen ombudsman.390

ii. The law-enforcement or the executive decision-making of the state may be

affected by the obligations undertaken by it in the various treaties signed by it. Fearful of being stung by a multi-million dollar arbitration claim, a government may be reluctant to make a decision that, although for a ‘public purpose’, could adversely affect the investor.391

iii. The state is sued by an investor for taking measures which although enacted or

executed for a public purpose, may still be considered a breach of the underlying investment agreement. Such an outcome may be suggested by the following factors:

384 For instance, see U.N. GA, 70th Sess., Report of the Special Rapporteur of the Human Rights Council on the rights of indigenous peoples on the impact of international investment and free trade on the human rights of indigenous peoples, at 6, U.N. Doc. A/70/301 (Aug. 7, 2015), in the context of the impact of investment agreements on the right to health: “International investment agreements impose obligations on States vis-à-vis investors that may affect States’ power to introduce health laws in the public interest. States may have to modify their laws to accommodate investors’ rights, even though such modifications may increase the risk of violating individuals’ right to health.” 385 See Victoria Tauli- Corpuz, Report of the Special Rapporteur of the Human Rights Council on the rights of indigenous peoples on the impact of international investment and free trade on the human rights of indigenous peoples, United Nations General Assembly, (2015) http://unsr.vtaulicorpuz.org/site/images/docs/annual/2015-annual-ga-a-70-301-en.pdf, at 8 (last accessed on June 16, 2016) (Page 16): “The “chilling effect” of investment and free trade agreements could reduce the often already-low political will of States to take actions to fully implement the rights of indigenous peoples.” 386 United Nations High Commissioner for Refugees, Human Rights, Trade and Investment, (2003) UN doc E/CN.4/Sub.2//2003/9, 35; and K Tienhaara, The Expropriation of Environmental Governance: Protecting Foreign Investors at the Expense of Public Policy (CUP 2009). See also, U.N. GA, 70th Sess., Report of the Special Rapporteur of the Human Rights Council on the rights of indigenous peoples on the impact of international investment and free trade on the human rights of indigenous peoples, at 6, U.N. Doc. A/70/301 (Aug. 7, 2015). 387 Lorenzo Cotula, Do investment treaties unduly constrain regulatory space? Questions of International Law (Nov. 24, 2014), http://www.qil-qdi.org/investment-treaties-unduly-constrain-regulatory-space/ (last accessed on June 18, 2016). 388 As told to the team in an interview with a Peruvian non-governmental organization. 389 Associated Press, Ahead of climate talks, Peru passes law weakening environmental protections, FOX NEWS (Jul. 20, 2014), available at http://www.foxnews.com/world/2014/07/20/ahead-climate-talks-peru-passes-law-weakening-environmental-protections.html (last accessed on June 16, 2016). 390 Frank Bajak, New Peru Law Weakens Environmental Safeguards, CNS NEWS (Jul. 20, 2014), available at http://cnsnews.com/news/article/new-peru-law-weakens-environmental-safeguards (last accessed on June 16, 2016). 391 U.N. GA, 69th Sess., Report of the Special Rapporteur on the right of everyone to the enjoyment of the highest attainable standard of physical and mental health, at 16, U.N. Doc. A/69/299 (Aug. 11, 2014).


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1. The express obligations undertaken by the state in the treaty, as outlined above.

2. The ambiguous nature of the term ‘public purpose’. The TPP does not define the term, instead making a reference to its meaning in customary international law.392 Of course, this means that states have wider latitude for making an argument regarding what constitutes a public purpose in their country.393 However, the lack of any treaty guidance on the meaning of the term also introduces a great degree of subjectivity. It is up to the arbitral tribunal to determine whether a state’s defense in the name of public interest is legitimate or not. While the tribunal may take guidance from past investment arbitration decisions to determine whether the state has expropriated an investment or is saved by the ‘public purpose’ exception, there is no adequate consistency in decisions in this regard.394 Specifically with relation to this report, there is no guarantee that a tribunal will rule that protection of indigenous and cultural heritage rights constitutes a legitimate public purpose.

Investors continue to challenge actions taken in public interest by governments, as amounting to unlawful expropriation. This is illustrated by the ongoing investment arbitration case initiated by Bear Creek, a Canadian mining corporation, against the Peruvian state, under the Peru-Canada FTA.395 In 2011, the Peruvian government revoked the corporation’s license to mine in Santa Ana, following protests by indigenous groups concerning the impact of the mining on Lake Titicaca. Six people had also died in protests. Bear Creek alleges that this is unlawful expropriation. There are indications that the government may re-permit mining to avoid an expensive legal battle.396

3. Stabilization clauses in the investment treaties. These clauses typically freeze

the law applicable to the investor by making that the law which was in force at the time the concerned countries executed the treaty.397 Alternatively, investors may be subject to a change in law, but the state will be required to indemnify the investor for any loss suffered by it on account of the change.

392 See footnote 7 to the TPP, Feb. 4, 2016, Article 9.7(1)(a). 393 Pedro J. Martinez-Fraga and C. Ryan Reetz a Public Purpose in International Law 256 (2015). 394 Pedro J. Martinez-Fraga and C. Ryan Reetz a Public Purpose in International Law 256 (2015). 395 ICSID Case No. ARB/14/21. 396 Victoria Tauli- Corpuz, Report of the Special Rapporteur of the Human Rights Council on the rights of indigenous peoples on the impact of international investment and free trade on the human rights of indigenous peoples, United Nations General Assembly, (2015) http://unsr.vtaulicorpuz.org/site/images/docs/annual/2015-annual-ga-a-70-301-en.pdf, at 8 (last accessed on June 16, 2016), at 11. 397 “A stabilization clause is extremely disadvantageous for the government which “agrees” to it because it freezes the legal and regulatory situation of the country for an extended period of time and requires the government to pay compensation if changes affect an investor”, Jenik Radon, The ABCs of Petroleum Contracts: License-Concession Agreements, Joint Ventures, and Production-sharing Agreements, in COVERING OIL: A REPORTER’S GUIDE TO ENERGY AND DEVELOPMENT 61, 79 (Svetlana Tsalik and Anya Schiffrin eds., 2005).


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Such a clause subverts the notion of state sovereignty.398 A private party is able to insulate itself from the law. If a state does try and apply a changed set of laws to a private investor, the investor can sue it on the ground that the country has breached its treaty obligation.

A case which illustrates the above situation, is that of Piero Foresti, Laura de Carli & Others v. The Republic of South Africa, ICSID Case No. ARB(AF)/07/01.399 The concerned statute was the post-apartheid Mineral and Petroleum Resources Development Act of 2004. In an attempt to make amends for the historic discrimination faced by black South Africans in the mining sector, this statute inter alia required 26% of the ownership in mining companies to be held by them. Existing mining licenses were cancelled and companies were required to re-apply. Two years later, a consortium of Italian investors sued the South African government. They alleged that the government had unlawfully expropriated their investments and treated them unfairly. An amount of US$ 350 million was claimed by the investors. The case was eventually dropped by the investors. They were ordered to pay 400,000 € towards the South African government’s costs. However, the government had only scored a Pyrrhic victory. An additional and unreimbursed 5,000,000€ had been spent by the government on legal fees. More significantly, the investors – who controlled most of the South African graphite industry - did not have to comply with the new rule. Instead of 26%, the investors were required to only have 5% of the ownership of their companies in the hands of black South Africans.400

Stabilization clauses play havoc with Peru’s legislative policies. For instance, the Peruvian government could be subjected to suits instituted by foreign investors arguing breach of these stabilization clauses, if it decided to make procurement of social license a non-waivable pre-condition to the exploitation or exploration stage of mining.

b. It is questionable whether investment agreements have a positive impact on foreign

investment.401 A company’s decision to invest in a company does not depend on whether its country has signed an FTA with the potential host country. If the resource is there, the investment will take place as investments in the extractive industry are in the first instance dictated by the location of the mineral. For instance, a private mining company communicated that the deciding factor for it to invest in Peru was the presence of copper:

398 Victoria Tauli- Corpuz, Report of the Special Rapporteur of the Human Rights Council on the rights of indigenous peoples on the impact of international investment and free trade on the human rights of indigenous peoples, United Nations General Assembly, (2015) http://unsr.vtaulicorpuz.org/site/images/docs/annual/2015-annual-ga-a-70-301-en.pdf, at 8 (last accessed on June 16, 2016), at page 17. 399 Piero Foresti, Laura de Carli & Others v. The Republic of South Africa, ICSID Case No. ARB(AF)/07/01. 400 Claire Provost and Matt Kenard, The obscure legal system that lets corporations sues countries, THE GUARDIAN (Jun. 10, 2015), http://www.theguardian.com/business/2015/jun/10/obscure-legal-system-lets-corportations-sue-states-ttip-icsid (last accessed on June 16, 2016). 401 See Columbia School of International and Public Affairs Report, Mining in Peru: Benefitting from Natural Resources and Preventing the Resource Curse Capstone Workshop – Spring 2015, (2015) available at https://sipa.columbia.edu/sites/default/files/Capstone%20-%20Peru%20(25%20June%202015)_FOR_PUBLICATION.pdf, at 43.


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the presence or absence of a BIT was not a factor. It is relevant to note that Brazil has not signed an investment treaty containing an ISDS provision.402 Despite this, Brazil is the largest recipient of foreign direct investment in South America, and the fifth largest in the world.403

c. It is difficult for states to initiate claims against investors through a BIT, as no duties are

imposed on investors in these treaties.404 In most cases, it is the investor that initiates arbitration. The following scenarios are possible: the investor is awarded an award, the investor’s claim is dismissed, or the investor and the state settle. In each of these scenarios, the states lose a significant amount of money:

i. If an award is rendered against the state: Awards issued in investment

arbitrations are burdensome on the state’s exchequer. This is demonstrated by the sums claimed by investors in the following ongoing investment arbitrations in the mining sector in Peru:

1. The Renco Group v. The Republic of Peru, ICSID Case No. UNCT/13/1: This

is an arbitration initiated by the Renco Group, Inc., a US corporation, pursuant to the Peru-US Trade Promotion Agreement. Renco is claiming USD 800 million in compensation against the Peruvian government.405

2. Bear Creek Mining Corporation v. The Republic of Peru, ICSID Case No.

ARB/14/21: The claimant is a Canadian mining corporation (which has a wholly-owned Peruvian subsidiary), which has invoked arbitration pursuant to the Peru-Canada FTA. The amount claimed is USD 1600 million.

The adverse impact of these arbitrations – if decided in favor of the investors – on Peru’s economy is apparent when these figures are seen against Peru’s GDP406: USD 202.6 billion.407 If Renco prevails it can potentially secure an award worth 0.4% of Peru’s GDP. If Bear Creek prevails in its claim, it can potentially secure an award worth 0.8% of Peru’s GDP.

ii. If the state settles: An argument which is made to advance the proposition that

the investor-state system of arbitration is not biased against the state, is that only a minority of investors have succeeded in securing awards in their favor. Even if

402 Guardian article; Pedro Martini, Brazil’s New Investment Treaties: Outside Looking … Out?, Kluwer Arbitration Blog (Jun. 16, 2015), http://kluwerarbitrationblog.com/2015/06/16/brazils-new-investment-treaties-outside-looking-out-2/ (last accessed on Jun. 18, 2016); The Arbitration Game, THE ECONOMIST (Oct. 11, 2014), http://www.economist.com/news/finance-and-economics/21623756-governments-are-souring-treaties-protect-foreign-investors-arbitration (last accessed on Jun. 18, 2016). 403Brazil: Foreign Investment, SANTANDER TRADEPORTAL (JUN. 2016), https://en.santandertrade.com/establish-overseas/brazil/foreign-investment (last accessed on Jun. 17, 2016). 404 U.N. GA, 70th Sess., Report of the Special Rapporteur of the Human Rights Council on the rights of indigenous peoples on the impact of international investment and free trade on the human rights of indigenous peoples, at 6, U.N. Doc. A/70/301 (Aug. 7, 2015), at 14. 405 See Columbia School of International and Public Affairs Report, Mining in Peru: Benefitting from Natural Resources and Preventing the Resource Curse Capstone Workshop – Spring 2015, (2015) available at https://sipa.columbia.edu/sites/default/files/Capstone%20-%20Peru%20(25%20June%202015)_FOR_PUBLICATION.pdf, at 44. 406 In 2014. 407 The World Bank, Peru: Country at a Glance, http://www.worldbank.org/en/country/peru


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they do so, the arbitration award is usually less than the claimed amount. However, a reason why awards are not rendered is because the state and the investor settle, often at a great cost to the state. For instance, in May 2014, Rurelec, a corporation in the power-generation sector from the United Kingdom, settled an investment arbitration with the state of Bolivia, for a sum of USD 35 million.408 The non-monetary but extremely significant impact of such a settlement is on the sovereignty of a state.

iii. If the state wins: Even when a state successfully defends itself in an investment-

arbitration, it only scores a Pyrrhic victory. However, such a conclusion would ignore the high legal costs associated with investment arbitration. “Of the 193 ICSID cases where awards have been made, approximately 40% disclosed legal costs. For these, we found legal payouts totalled $744m. By extrapolating that figure to all cases where awards have been made, the Bureau estimates that total legal costs at ICSID could be in excess of $1.8bn. If private settlements made before the conclusion of an ICSID ruling are added in, the full total could be more than $2bn.”409

– How is the TPP Different? – The TPP attempts to do some things differently from past investment treaties, prompted by the criticisms which these treaties have received. Listed below are some changes which the TPP introduces:

I. The savings clause: In the backdrop of the consistent criticism that investment treaties have a negative impact on the assertion by a state of its sovereign power to legislate and enforce existing local laws, a savings clause – Article 9.15 – has been introduced in the TPP. Article 9.15 states that nothing in the ISDS chapter should be interpreted to prevent a party to the treaty, from adopting, maintaining or enforcing any measure that is “otherwise consistent with” the ISDS chapter, if the state considers it to be appropriate to ensure that investment activity in the country is “undertaken in a manner sensitive to environmental, health or other regulatory objectives” (“Savings Clause”). Therefore, prima facie, pursuant to this clause, a state may have unfettered authority to adopt, maintain or enforce any measure which it considers appropriate with the stated objectives.

II. Transparency of arbitral proceedings: Perhaps in response to criticism about lack of

transparency around and public access to investment arbitration hearings, the TPP mandates the following:410

408 Claire Provost and Matt Kenard, The obscure legal system that lets corporations sues countries, THE GUARDIAN (Jun. 10, 2015), http://www.theguardian.com/business/2015/jun/10/obscure-legal-system-lets-corportations-sue-states-ttip-icsid (last accessed on June 16, 2016). 409 Nick Mathiason and Claire Provost, The billions made by lawyers when multinationals put countries in the dock, The Bureau of Investigative Journalism (Jan. 11, 2016), https://www.thebureauinvestigates.com/2016/01/11/the-billions-made-by-lawyers-when-multinationals-put-countries-in-the-dock/ (last accessed on Jun. 16, 2016). 410 See TPP, Feb. 4, 2016, Article 9.24. See also Sonja Heppner, A Right of Public Access to Investor-State Arbitral Proceedings?, Kluwer Arbitration Blog (Dec. 9, 2015), http://kluwerarbitrationblog.com/2015/12/09/a-right-of-public-access-to-investor-state-arbitral-proceedings/ (last accessed on Jun. 15, 2016).


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III. Transmission of the notice of intent, notice of arbitration, pleadings and other written submissions to the tribunal, minutes or transcripts of hearings, orders, awards and tribunal decisions, to the non-disputing parties to the TPP.

IV. The conduct of hearings is required to be open to the public, unless a disputing party

claims that some information to be used in the hearing is protected information.

a. The above cannot withhold the respondent from disclosing any information if so required by an applicable law. The respondent is however required to try and apply these laws in a manner that is sensitive to protecting from disclosure information that has been designated as protected information.

V. Counterclaims: The TPP, in Article 9.18(2), permits the respondent to make a

counterclaim “in connection with the factual and legal basis of the claim or rely on a claim for the purpose of a set off against the claimant.” Since it is the investor which is usually the claimant, this provision means that the state can make a counterclaim. This again appears as an attempt to counter the criticism that investment treaties disproportionately favor investors.411

– What’s Missing? A Critique of the TPP, with Recommendations for Improvement – Although the TPP has made amends for some of the flaws for which the ISDS system has consistently received criticism, there still remain multiple areas where there is scope for improvement. Unfortunately, Peru has already signed the TPP, although it will become binding only when the treaty is approved by Congress. Nonetheless, there are many lessons to be learnt from the TPP. It is recommended that Peru starts adopting a more circumspect approach towards signing investment treaties. Multiple mining companies stated in their interviews that the existence of an investment treaty was not a pre-requisite to their decision to invest in a country. The presence of natural resources – in which Peru is blessed – is what motivates investments. Nevertheless, the trend suggests that Peru will continue to sign free trade agreements. Given this, Peru should adopt the Brazilian route and negotiate for signing investment treaties without an ISDS mechanism. Its South American neighbors such as Bolivia and Ecuador have even exited the ICSID Convention.412 If Peru wishes to “cede less sovereignty”, it “should do so during negotiation”.413 Even if Peru is unable to do away with an ISDS mechanism, it should negotiate for certain other crucial clauses. We have outlined these below, in the background of the areas of improvement in the TPP. Ideally, Peru should seek re-negotiation of these clauses. If that is not

411 Allen & Overy, New investment protections offered in ground-breaking Trans-Pacific Partnership (Dec. 23, 2015), http://www.allenovery.com/publications/en-gb/Pages/New-investment-protections-offered-in-ground-breaking-Trans--Pacific-Partnership.aspx (last accessed on Jun. 16, 2016). 412 Sergey Ripinski, Venezuela’s Withdrawal: What it Does and Does Not Achieve, INVESTMENT TREATY NEWS (Apr. 13, 2012), https://www.iisd.org/itn/2012/04/13/venezuelas-withdrawal-from-icsid-what-it-does-and-does-not-achieve/ (last accessed on Jun. 16, 2016). 413 Susan D. Franck, The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law Through Inconsistent Decisions,73(4) Ford. L. Rev. 1521, 1591 (2005).


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possible, Peru should negotiate for such clauses in its future investment treaties with other nations: – Recommendations –

a. Increasing transparency: The TPP’s attempt to introduce an element of transparency with respect to the arbitral proceedings stands in stark contrast with the lack of transparency surrounding the negotiation meetings preceding the signing of the treaty. With this lack of transparency comes a lack of social inclusion. As recommended above, representatives of indigenous communities should be given the opportunity to participate in negotiations concerning investment agreements. A balance should be maintained between the need to conduct negotiations efficiently and the right of the public to know more about these negotiations.

b. Re-drafting the Savings Clause: The Savings Clause fails in its intention to preserve a

state’s authority to legislate notwithstanding the obligations undertaken by it in the TPP. The use of the phrase “otherwise consistent with” in the clause indicates that the cornerstone on which any legislation or regulation shall be tested on are the very same TPP obligations. Thus, a law passed by Peru to make, for instance, the EIA process stricter, although ostensibly permitted as it is for an environmental objective, may be considered “expropriation”414 of a foreign investment under the TPP. Thus, the first recommendation would be that the phrase “otherwise consistent with” ought to be deleted. A state’s law-making authority should not be ex-ante encumbered with the obligations it has undertaken to a private investor. The Savings Clause should be re-drafted to state the following: Article 9.15: Investment and Environmental, Health, [Indigenous Affairs, Preservation of Cultural Heritage] and other Regulatory Objectives Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health [, indigenous affairs, preservation of cultural heritage] or other regulatory objectives.

c. Making ‘protection of the indigenous and preservation of cultural heritage’ a ‘public purpose’: Currently, the TPP relies on customary international law for defining the meaning of the term, ‘public purpose’ in relation to expropriation and compensation.415 This introduces an element of subjectivity which is dissonant with the unambiguous reality that in Peru, protection of the indigenous and preserving their cultural heritage, is a public necessity. Peru should negotiate for the express inclusion of these two objectives as part of the ‘public purpose’ exception to expropriation. Thiswould mean that investors would not be able to challenge the authority of the Peruvian state to provide for the indigenous.

414 TPP, Feb. 4, 2016, Article 9.7. 415 See Footnote 17 to TPP, Feb. 4, 2016, Article 9.7.


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Therefore, we propose the following annotation against the term ‘public purpose’ for the purposes of Article 9.7 (Expropriation and Compensation) with respect to Peru: For greater certainty, for the purposes of this Article, the term “public purpose” refers to a concept in customary international law [, and in Peru includes protection of the indigenous and preservation of cultural heritage]. Domestic law may express this or a similar concept by using different terms, such as “public necessity”, “public interest” or “public use”.

d. Providing for appeals: The ICSID ISDS system does not allow for an appeal against an award.416 The award may be annulled under limited circumstances.417 Thus, if an investor secures an ICSID award under the TPP against Peru, Peru can only seek annulment of the award under the said limited grounds. Unlike a court proceeding, there is no prospect of appeal. The enormity of this omission becomes especially apparent when one considers what is at stake in investor-state arbitration. As outlined above, awards against states often represent in amount a significant percentage of the concerned state’s GDP. Such awards also represent a threat to a country’s sovereignty. Unfortunately, the TPP only contemplates the prospect of an appellate mechanism, and does nothing more.418 Evidently, states either did not negotiate for at all or did not negotiate strongly enough for such a mechanism. This is in stark contrast with the negotiations relating to the proposed Transatlantic Trade and Investment Partnership (“TTIP”). The TTIP is proposed to be signed by the European Union (“EU”) and the United States of America. The EU has been pushing for the establishment of an ‘Investment Court System’ (“ICS”).419 The ICS provides for the constitution of a Tribunal of First Instance and an Arbitral Tribunal. Instead of the state and the investor appointing their arbitrators, fifteen judges would be appointed by the treaty parties for renewable terms of six years, to the Tribunal of First Instance. Case assignments, allotted by the President of such Tribunal, would be done on a rotation basis. The permanent Appeals Tribunal will comprise six members, appointed for renewable terms of six years. This system is similar to the ones provided for in the EU-Canada Comprehensive Economic and Trade Agreement (CETA),420 and EU-Vietnam Free Trade Agreement.421 Even if not possible in the TPP, Peru should negotiate for such an appellate mechanism in its investment treaties going forward.

416 ICSID Convention, Rules and Regulations, Article 53(1). 417 ICSID Convention, Rules and Regulations, Article 52. 418 TPP, Feb. 4, 2016, Article 9.22(11). 419 See Section 3 – ‘Resolution of Investment Disputes and Investment Court System’, Commission Draft Text TTIP – Investment, http://trade.ec.europa.eu/doclib/docs/2015/september/tradoc_153807.pdf (last accessed on Jun. 16, 2016). 420 CETA: EU and Canada agree on new approach on investment in trade agreement, European Commission (Feb. 29, 2016), http://trade.ec.europa.eu/doclib/press/index.cfm?id=1468 (last accessed on Jun. 16, 2016). 421 Céline Lévesque, The European Union Commission Proposal for the Creation of an “Investment Court System”: The Q and A that the Commission Won’t Be Issuing, Kluwer Arbitration Blog (Apr. 6, 2016), http://kluwerarbitrationblog.com/2016/04/06/the-european-union-commission-proposal-for-the-creation-of-an-investment-court-system-the-q-and-a-that-the-commission-wont-be-issuing/ (last accessed on Jun. 16, 2016).


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e. Code for arbitrators: Another area where the TPP falls short is on providing a binding code of conduct for arbitrators. Once again, the TPP contemplates such a code in Chapter 27 (Dispute Resolution) and the state parties have agreed to provide guidance on the applicability of such a code to arbitrators in the ISDS system.422 However, presently, there is no such code. Arbitrators would therefore continue to be bound by applicable arbitral rules and soft law guidelines on inter alia conflicts of interest. It is in Peru’s interest to negotiate for codes of conduct for arbitrators in its investment treaties, to ensure the constitution of a neutral and unbiased tribunal.

f. Corporate Social Responsibility: Similar to its free trade agreement with Canada,423 the

TPP only underlines the importance of parties encouraging foreign investors operating in their jurisdictions to “voluntarily incorporate” internationally recognized standards, guidelines and principles of corporate social responsibility, which have been either endorsed or supported by that particular country.424 As emphasized in the 2015 Capstone Report,425 such a rule can only be given teeth if investors are mandatorily required to undertake social responsibility, particularly towards indigenous communities.

– Conclusion – In this section a critique of the TPP was conducted against a broader analysis of investment treaties and their impact on a state’s legislative and executive authority. As this analysis demonstrates, the Peruvian government views investment treaties as catalysts for increasing foreign investment. It is however debatable whether investment treaties truly act as a deciding factor for foreign companies which are contemplating investing in Peru. The deciding factor to invest is the presence of the desired natural resources. Peru is a country which is blessed with a wide variety of natural resources. It should adopt a more circumspect approach towards investment treaties in the future. A more cautious attitude is warranted by the pitfalls associated with investment treaties. By committing to provide a particular investment environment for a foreign private investor, the Peruvian government’s law-making and executive authority is potentially restricted. The twin motivations of attracting foreign investment and avoiding a multimillion dollar claim, may persuade a state to exercise its authority in a manner which is beneficial to foreign investors. In the case of Peru, this was demonstrated by the environmental law amendments in 2014, which reduced the degree of compliance required from investors. This is a disquieting development, which may engender a particular type of ‘pro-investor’ narrative, where Peru begins to lower compliance standards in every concerned sector in its effort to attract more investors. Such a development also undoubtedly affects the rights of the indigenous. As a mining company stated during an interview, in Peru, unlike Chile, the mining areas are located adjacent to the homes of the indigenous. Any legislative, executive or private sector measure which implicates the mining sector, also implicates the indigenous. A cautionary approach is warranted. 422 TPP, Feb. 4, 2016, Article 9.21(6). 423 Canada-Peru FTA, (2008), Art. 810. 424 TPP, Feb. 4, 2016, Article 9.16. 425 Columbia School of International and Public Affairs Report, Mining in Peru: Benefitting from Natural Resources and Preventing the Resource Curse Capstone Workshop – Spring 2015, 48 (2015) available at https://sipa.columbia.edu/sites/default/files/Capstone%20-%20Peru%20(25%20June%202015)_FOR_PUBLICATION.pdf.


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Simultaneously, it is acknowledged that given its historically positive attitude towards investment agreements, it is likely that the Peruvian government will continue to sign such treaties. On account of this, this section also makes recommendations on the type of clauses the Peruvian government should negotiate for inclusion in such treaties. In making these recommendations, the emphasis has been to ensure that the government does not cede its right – and its duty – to look after the indigenous. Recommendations have also been made to improve the arbitral process itself, with the objective, among others, of preserving the right of the Peruvian state to challenge an arbitral award. As is indicated by a perusal of this section, each of the state recommendations are grounded in the following principles: the need for greater transparency, social inclusion, preservation of state sovereignty, and corporate accountability.


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CONCLUSION On May 4, 2016, the Latin American television network, TeleSUR, reported that indigenous communities in Peru’s Apurimac region had decided to strike against one of the largest mining projects in the country: the mine operated by the Chinese multinational company, MMG Limited. As is typical of such conflicts, the stakes are high for both parties. MMG Limited claims that it will invest USD 10 billion in the project. It also claims that the mine will yield more than 450,000 tons of copper per year. On the other side are the affected indigenous communities. Their demand is that a meeting be held among the representatives of each concerned community, along with representatives from MMG Limited and the government. This development has occurred in the backdrop of an earlier strike in September 2015. Reportedly, an Environmental Impact Study was changed and various facilities were added, such as a filters plant and a concentrated materials storage facility – without an agreement being reached with the indigenous communities. Evidently, matters have now reached a standstill in Apurimac.426 The situation in Apurimac is emblematic of the widespread conflict in Peru among the indigenous communities, the government and the mining companies. The 2015 Capstone Report, outlining the different agendas and objectives of each stakeholder, had illustrated the complexity of this conflict. This Report takes the analysis a step forward, and views the conflict from the prism of three issues: the social license to operate; corruption which afflicts the mining industry in Peru; and the Trans-Pacific Partnership Treaty. As outlined at the outset, in 2014 Ernst and Young had viewed ‘social license to operate’ as the 3rd biggest ‘risk’ afflicting the mining industry. The use of the term ‘risk’ demonstrates how mining companies perceive the process of taking community consent. This Report makes a case for altering perceptions of such consent. It advocates the institutional recognition of the legitimate interests of the indigenous in some specified ways. This includes the execution of a legally binding consent agreement between the company and the indigenous community, and the appointment of independent counsel for the community to help it to negotiate such an agreement. By treating the relationship with the indigenous as akin to a partnership, mining companies will take a big step closer towards bridging the divide between the two. This in turn, will lessen the ‘risk’ factor associated with social license. Simultaneously, this Report recommends a greater and more defined role for the government. This includes stages at the beginning of the social licensing process – identification of an ‘indigenous’ community, and granting of mining concessions - to stages which come later, such as the distribution of benefits. The government’s role is also analyzed from the lens of corruption control. The potential for corruption to occur exists at multiple stages of the licensing process. Specific analysis is done of issues such as conflicts of interest between government officials and company personnel, the distribution of taxes between the national and sub-national government, and the EIA process. The manifold risk factors associated with the mining industry highlights not only the need for greater transparency and accountability, but also greater coordination between the national and sub-national governments. 426 “Indigenous in Peru Set to Strike Against Massive Copper Mine”, Telesur TV, available at http://www.telesurtv.net/english/news/Indigenous-in-Peru-Set-to-Strike-Against-Massive-Copper-Mine-20160504-0042.html (last accessed on July 16, 2016).


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Third, the Report studies in brief, the TPP. As outlined above, the government’s positive perception of investment treaties such as the TPP, sheds light on the way in which it views the ideal type of development. Investment treaties are viewed as a catalyst for foreign investment, which in turn, is equated with greater development. This Report questions the causation between investment treaties and greater foreign investment. It also questions the developmental model which is implicitly envisaged by such investment treaties. Obligations such as the duty to provide a foreign investor a stable investment atmosphere appear to be fair in isolation. However, when viewed subjectively, a clearer picture emerges. A stable investment atmosphere would mean the elimination of factors which are ‘risky’ for the investment. As discussed above, social license is seen as one such risk. By entering into a binding commitment to provide foreign investors a stable environment, the Peruvian government is potentially restricting its ability to legislate and provide for the indigenous. This conflicts with the partnership status which should be accorded to the indigenous. It is recommended that the government adopt a more cautionary approach towards investment treaties, by either not signing them, or by negotiating for the exclusion of indigenous affairs from the application of the investment obligations and the investor-state dispute settlement system. One of the recipients of the 2016 Goldman Environmental Prize is Maxima Acuña. She is a subsistence farmer in Peru’s Andean region, who stood up for the right to peacefully live off her own property, a plot of land which was sought by the mining companies of Newmont and Buenaventura, to develop the Conga gold and copper mine.427 To compel Maxima to give up her land, the mining companies had employed “armed forces” to beat her and her daughter up. A provincial court found Maxima guilty of illegally squatting on her own land. With the help of an NGO that represented local communities in cases against mining companies, Maxima gathered documents to show proof of legal ownership over the land, and appealed the ruling. She prevailed. Maxima’s story is inspiring: it demonstrates her ability to beat the odds despite any support from the government, and opposition from the mining companies. It does not have to be this way. As the 2015 and the 2016 Capstone Reports suggest, strategic intervention from the government, and transparent cooperation from the mining company, is the need of the hour. Peru is a country blessed with natural resources. Mining companies will continue to set base here. The government can afford to adopt a more inclusive approach and mining companies cannot afford to play truant against socially inclusive government policies. The time is ripe for change.

427 Profile of Máxima Acuña, The Goldman Environmental Prize, available at http://www.goldmanprize.org/recipient/maxima-acuna/ (last accessed on July 16, 2016).


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ANNEXES EXHIBIT 1

COMMUNITY CONSENT AND PARTNERSHIP AGREEMENT

This COMMUNITY CONSENT AND PARTNERSHIP AGREEMENT (this “Agreement”) is made on this [] day of []

BETWEEN:

[], (hereinafter referred to as the “Company”);

AND

[], (hereinafter referred to as the “Indigenous Community”);

AND

[Ministry of Energy and Mines], (hereinafter referred to as the “MINEM”);

AND

[Ministry of Culture], (hereinafter referred to as the “MOC”);

AND

[], (hereinafter referred to as the “Local Government”);

AND

[], (hereinafter referred to as the “Regional Government”).

(the Company, Indigenous Community, MINEM, MOC, Local Government and Regional Government are hereinafter referred to collectively as the “Parties” and individually as “Party”).

WHEREAS:

A. The Parties recognize that the Government of Peru owns all subsurface minerals and has the right to grant concessions for extraction and exploitation of mineral resources.

B. The Parties recognize the rights, titles and interests of the Indigenous Community to their traditional territories on which the Company proposes to develop the Project.


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C. The Parties agree to preserve the cultural distinctiveness and social well-being of the Indigenous Community and protect the way of life that is based on an economic and spiritual relationship between Indigenous Community and the land.

D. The Parties agree to develop and operate the Project that preserves and respects the cultural activities, traditions, practices, heritage and language of the Indigenous Community, protects the environment and natural ecosystems and prevents adverse environmental impacts.

E. The Parties recognize and acknowledge the Indigenous Community as a partner and stakeholder in the development and operation of the Project.

F. The Parties to this Agreement agree to enhance the ability of the Indigenous Community to participate fully in all aspects of the economy of Peru.

G. The Parties acknowledge that the signing of this Agreement is a prerequisite for setting up the Project and its objective is to promote long-term stability and sustainable development of the Project.

Now, therefore, in consideration of the mutual rights and obligations contained in this Agreement and other good and valuable consideration, the Parties agree as follows:

ARTICLE 1—DEFINITIONS AND INTERPRETATION

1.1 DEFINITIONS

“Applicable Law” means, as amended from time to time, all laws, treaties, ordinances, rules, regulations and orders having force of law, and any authoritative interpretation of such laws, treaties, ordinances, rules, regulations and orders issued by a competent court, arbitral tribunal or other governmental agency that directly or indirectly apply to the Project.

“Community Consent” has the meaning given to the term in Section 4.2 (Indigenous Community Consent). “Effective Date” means the date of signing of this Agreement. “Implementation Committee” has the meaning given to the term in Section 7.1 (Appointment of Implementation Committee). “Indigenous Community Participation Forum” has the meaning given to the term in Section 6.1 (Requirement For Forum Process). “Minerals” means the [the relevant minerals to be mined and the associated minerals].


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“Mining Operation” means, subject to compliance with Applicable law and this Agreement, all work related to the various phases in the mineral development process, including exploration, mineral deposit evaluation, mine construction, mine development, mining, the reclamation or rehabilitation of and remediation of land, the extraction, beneficiation, transportation, handling, storage and marketing of a mineral substance extracted, the processing of mine tailings and all other activities necessary or convenient to carry out the Company’s rights and obligations under this Agreement, but not including work performed for others.”

“Party” means the Indigenous Community, Company or the State as the context may require.

“Project” means the development, production and reclamation of a Mining Operation under this Agreement, all Mining Operations undertaken in the Project Area, and all activities in connection therewith, pursuant to and in accordance with this Agreement, including all facilities and infrastructure that are reasonable and necessary for the project according to good industry practice.

“Project Area” mining area and surrounding vicinity that is any way impacted, directly or indirectly, by the mining activities including transportation or fumes. “State” collectively MINEM, Regional Government and the Local Government.

“Traditional Territory” means the geographic areas identified as the traditional territory by the Indigenous Community.

1.2 INTERPRETATION

In this Agreement, unless the context otherwise requires:

(a) The singular includes the plural and vice-versa;

(b) Headings do not affect the interpretation of this Agreement;

(c) References to a part, clause, schedule, exhibit and annex refers to a part, clause, schedule, exhibit or annex of, in or to this Agreement;

(d) A reference to this Agreement includes all schedules, exhibits and annexes to this Agreement;

(e) A reference to an agreement, deed, instrument or other document includes the same as amended, notated, supplemented, or replaced from time to time;

(f) A reference to a court is to a court of [Peru];


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(g) A reference to any legislation or legislative provision includes any statutory modification or re-enactment of, or legislative provision substituted for, and any subordinated legislation issued under, that legislation or legislative provision;

(h) A reference to a day, month or year is relevantly to a calendar day, calendar month or calendar year;

(j) The expressions “including”, “includes” and “include” have the meaning as if followed by “without limitation”;

(k) [No rule of construction is to apply to the disadvantage of a party on the basis that that party drafted the whole or any part of this Agreement; and]

(l) Where a word or phrase is defined, its other grammatical forms have a corresponding meaning.

1.3 EXISTING RIGHTS

The rights, obligations and liabilities of the Company and the State subsisting prior to the Effective Date under Applicable Law or permits, licenses or approvals issued thereunder, except as superseded herein, will continue and bind both the Company and the State during the term of this Agreement.

ARTICLE 2—TERM AND RENEWAL OF TERM

2.1 TERM

This Agreement will take effect on the date of signing of this Agreement and will remain legal, valid and binding for [INSERT TERM OF CONCESSION PERIOD] years. Provided, however:

(a) there remain undeveloped Minerals in the Project Area at the end of such [INSERT TERM OF

CONCESSION PERIOD] year period;428 (b) the Company is not in default under this Agreement; and (c) this Agreement has not been terminated at an earlier date in accordance with its terms and

conditions.

2.2 RENEWAL OF TERM 428 The term of this Agreement can either be back to back with that of the concession period permitted or alternatively the obligations undertaken in this Agreement can continue for an agreed time period independent of the mining activities. The latter would bring more certainty to the benefits being made available to the people but the Company may object to having to be being bound to provide such benefits despite no longer engaging in any mining activities. Nevertheless, an argument can be made that once the Company starts operating and deriving benefit from the mine then for whatever reason if it abandons the mining activity the Indigenous Communities should still be entitled to the promises made in return for them permitting the Company to engage in mining activities in the Traditional Territories. It is important that the expectations of the people are met and there is no loss of reliance so as to avoid social conflicts.


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The Indigenous Community will have the option to renew this Agreement on terms and conditions that the Parties may then agree upon to reflect then-existing and foreseeable conditions, provided that this Agreement (as previously renewed, if applicable) will remain in effect during the period in which the Parties are negotiating the terms of any such renewal.

ARTICLE 3—REPRESENTATIONS AND WARRANTIES

3.1 COMPANY REPRESENTATIONS AND WARRANTIES

The Company represents and warrants as follows:

(a) it is a duly incorporated company organized under the laws of [insert country of incorporation];

(b) it has good and sufficient power, authority and right to enter into and perform its obligations under this Agreement;

(c) this Agreement is, upon execution, a valid and legally binding obligation of the Company; (d) it will respect the cultural activities, traditions, practices, heritage and language of the

Indigenous Community. In carrying out development activities the Company will ensure that it does not damage, destroy, limit access to or displace the indigenous communities from their homes, traditional burial grounds, places of worship, agricultural lands or the like and ensure that there is no interference with practice of traditions and customs. In this respect the Parties will ensure that all communications, information and other measures aimed at inclusion of indigenous community will be in their local language;

(e) it will protect the environment and natural ecosystems and prevent429 any adverse environmental impacts within or outside the Project Area. The Company shall ensure that none of the project development activities adversely affect or contaminate the: (i) continuous supply of water (for drinking or for irrigation) in the impacted area, pollute rivers that may affect the local eco systems and affect supply of fish as a food source or undermine continued importance as being sacred part of their tradition; (ii) land so as to inhibit the ability of the local community to preserve their way of life that entails ‘living off the land’. This includes continued reliance on land for agriculture, rearing of animals and traditional herbal medicine; (iii) the air by release of pollutants that may have an adverse impact on the health and well being of the local people and vegetation;

(f) it has the necessary financial and technical capability to undertake the Project; (g) it will not engage in any detrimental practices including those of a business, environmental,

social or technical nature in relation to the Project. Instead in implementing the Project, the Company will adopt practices that prevent and mitigate against any adverse environmental impacts to the land, air or water and employ state of the art technology designed to minimize

429 The agreement stipulates the application of a stringent standard of ‘preventing’ environmental impacts rather than to eliminate/minimize the same. The aim is to impose a higher standard on the Company to take all measures to prevent any environmental impacts rather than proceeding with the mindset that they can pollute and thereafter mitigate the impacts. All work should be carried out without any adverse impacts.


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such adverse environmental impacts. Furthermore, the Company will not take any measures so as to coerce or displace the indigenous community in project implementation process from their lands or surrounding area. The business practices of the Company will be devised to include the local community in the benefits of development particularly through employment and training. In this respect the Company will provide training and employ local persons in the project development process on a long term and permanent basis. In the event that there are insufficient employment opportunities in the Project or such opportunities are not available on a permanent basis the Company will fund and provide training for alternate means of employment acceptable to the indigenous persons;

(h) except as expressly disclosed by the Company, it has not currently or in the past been accused of, had legal proceedings commenced against it or otherwise been involved in any detrimental practices including those of a business, environmental, social or technical nature in relation to any of its projects (mining or otherwise) located within or outside Peru. Furthermore, the Company undertakes to promptly inform the Implementation Committee of any developments in the aforesaid matters or any new matters that may arise following the Effective Date for the duration of the Term of this Agreement;430

(i) it has disclosed all information relating to the Company (including its shareholder details) and the Project and no information has been concealed, altered, deleted or misrepresented in any way;

(j) it will, after Effective Date, give prior notice to the Indigenous Community Participation Forum and Implementation Committee of any change in its controlling shareholders;

(k) it acknowledges the right of the Indigenous Community to be consulted431 and informed of all [developmental activities, any incidents or occurrences] at every stage of the Project. The Company will be required to engage, consult and inform the Indigenous Community: (i) prior to commencing with any construction, drilling or other activity related to the Project that may impact their day to day routine, practices or customs; (ii) upon occurrence of any event that may have an adverse environmental impact including on the air, water, or land, that may affect local eco-systems, vegetation or health and well being of the Indigenous Community in the Traditional Territory. Thereafter the Company will on a continuing basis act and assist the Indigenous Community in minimizing, mitigating and eliminating the adverse impacts in addition to taking measures to prevent future occurrences;

(l) it will not proceed with the Project in the event the Indigenous Community consent is not 430 There should be full disclosure of the Company’s track record especially of any detrimental practices in other Projects. This would enable the Indigenous Community to make an informed consent on whether they wish to allow the Company to carry out mining activities on its Traditional Territories particularly if for example the Company is in disrepute for disregarding the environmental consequences of its mining activities. 431 Consultation with the indigenous community should be carried out in the indigenous language of the community in an open, inclusive and non-coercive manner. It will entail a discussion and exchange of information and views on the potential impacts and benefits of the company commencing mining activities in the traditional territory of the indigenous communities. The company in the consultative process should strive to ensure a level playing field, take efforts to engage all stakeholders and ensure full disclosure of information.


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obtained or is withdrawn in terms of Section 4.2 (Indigenous Community Consent) of this Agreement, regardless of whether the government continues to support or intends to proceed with the Project;

(m) it understands and agrees to abide by the terms and conditions on which basis the consent has been granted by the Indigenous Community to proceed with the Project;

(n) acknowledges the right of the Indigenous Community to grant or withhold consent in terms of this Agreement.

3.2 INDIGENOUS COMMUNITY REPRESENTATIONS

The Indigenous Community represents and warrants as follows:432

3.3 STATE REPRESENTATIONS

The State represents and warrants as follows:

(a) in the event the Indigenous Community does not consent to the Project, in terms of Section 4.2 (Indigenous Community Consent) of this Agreement, the relevant governmental authorities will not issue any licenses, concessions or permits in respect of the Project. Any licenses, concessions or permits already issued may be bought back by the relevant governmental authorities on the understanding that the Indigenous Community has an inherent right and stake in the development of their Traditional Territories;433

(b) to secure funding for the capacity development of the Indigenous Community to help them participate in consultation process, public hearings, committees and other matters relating to development of their Traditional Territories;

(c) to exercise its governmental powers and discretion including suspension, revocation, cancellation or imposition of penalty on the Company for any acts or omissions that result in breach of this Agreement, Applicable laws or terms and conditions of concession, licenses or permits obtained in respect of the Project;

(d) it will mandatorily consider any concerns raised by the Indigenous Community. Any person, officer or representative approached by a complainant will either address the matter or direct the complaint to the relevant department, agency or office promptly

432 Representations on behalf of the Indigenous Community may be included following an engagement and consultation process. However, care should be taken to ensure that the rights of the Indigenous Communities including the right to object, disagree or prohibit any activities should in no way be curtailed. The objective of this Agreement is to gear the mining activities towards sustainable development that proves beneficial of all parties but a lesson from past projects has made it clear that development cannot be at the cost of suppression of local populations. 433 Social Conflict has been recognized as project risk and therefore it is now imperative for businesses to account for this risk. In this context it is necessary that where indigenous communities are opposed to a project either their grievances be addressed or the project be cancelled. Therefore, any project, which is opposed by the Indigenous Community, should not proceed unless concerns are addressed and consent is obtained. If despite efforts consent is not obtained the Company should be able to sell back the licenses to the Government. Companies should realize the risk they run of proceeding with a project that is opposed by the local communities despite continued government support.


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without delay or undue burden for the complainant. Thereafter, the relevant government entity shall investigate the complaint, conduct interviews, consult all relevant parties and inform the complainant of the outcome of the investigation along with proposed measures to be taken to alleviate the concerns. Measures to address the complaint will attempt to avoid, reduce or accommodate for concerns raised or any impacts thereof on the rights of the Indigenous Community. This may be implemented by revising proposals, imposing terms and conditions that protect community rights or amending of concessions, permit or licenses to include additional stipulations to this effect;

(e) if during any stage of project development the Community Consent is not granted, renewed or cancelled, all licenses, permits, concessions or permissions issued to the Company will be automatically deemed suspended and thereafter may be cancelled;

(f) to include such terms and conditions in all licenses, permits or concessions that protect and preserve the rights and title of the Indigenous Community to their Traditional Territories;

(g) will consult the Indigenous Community before issuing, renewing or reissuing any permission, license, permit or concession to the Company;

(h) publish notice of any hearings or other project developments to ensure participation of the Indigenous Community in the consultation process.

ARTICLE 4—PROJECT SCOPE AND INDIGENOUS COMMUNITY CONSENT

4.1 PROJECT SCOPE

(a) The Parties have agreed to the Project Scope as set out in Schedule C.

(b) The Parties agree that any future project or activities, outside the Project Scope (as described in Schedule C), that may be proposed by the Company within the Project Area will be subject to approval by the Indigenous Community and will: i. either form the subject matter of a separate agreement; or ii. at the discretion and determination of the Indigenous Community Participation Forum, the existing Project Scope may be amended to include the proposed project or activities.

The Company may request the Implementation Committee for the inclusion of the proposed project or activities in the Project Scope or for signing of a separate agreement. Thereafter the Implementation Committee will after consultation of all members make a recommendation (together with reasons therefor and all other related information) to the Indigenous Community Participation Forum. The Indigenous Community Participation Forum will have the final decision making power in this respect and may upon receipt of the recommendation by the Implementation Committee either: i. accept the recommendation with or without modifications; or ii. reject the recommendation without assigning any reason thereof.


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4.2 INDIGENOUS COMMUNITY CONSENT

(a) The Parties acknowledge and agree that the Company requires the free, prior and informed consent of the Indigenous Community for undertaking the Project in the Traditional Territory and the Project Area (the “Community Consent”).

(b) In order to be valid the Community Consent must be obtained:

i. without coercion, intimidation or manipulation of the Indigenous Community and given freely following exercise of their freedom and right to make decisions about development activities in their Traditional Territories and the Project Area;

ii. at every stage of project development to ensure that the Indigenous Community is to be kept informed of Project activities and aware of all circumstances surrounding the consent;

iii. ensuring that the Indigenous Community is engaged in a continuing consultation process and has access to all information in an easily understandable form and language. The information will be non-technical, easily comprehensible and in available in all local languages. Furthermore, there will be no imposition of rigid timelines instead adequate time will be allowed for the Indigenous Community to understand and make an informed decision;

iv. accepting that the Indigenous Community has the right to reject, impose terms and conditions or require modifications to the Project.

(c) The Community Consent is based on the assumption that complete information has been

provided and that the Indigenous Community has made an informed consent on the reliance of all information being made available. It is assumed that the information provided has not been in any way concealed, altered or misrepresented and that the Indigenous Community has not been misled, coerced, been subjected to undue influence.

(d) The Parties acknowledge and agree that the Community Consent is an express consent that must be procured by the Company and the duty to procure the same is not discharged by engaging in consultation or engagement process with the Indigenous Community. The Community Consent is a substantive pre-requisite for Project development and cannot be substituted or discharged by any ancillary means.

(e) The Parties acknowledge and agree that the Community Consent is not a one-time consent procured by the Company instead it is a continuing consent that may required to be renewed, revisited or renegotiated at any time there is any change or addition in the terms and conditions on which basis the Community Consent was previously granted by the Indigenous Community, there is a material change in the Project or where new information reveals cultural resources are at stake. The Company will be required to maintain the Community


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Consent throughout the project lifecycle which may be broadly identified as following phases:

i. Exploration and Permitting

ii. Construction iii. Operation iv. Closure v. Post Closure The Community Consent requirement will vary at each of the aforesaid phases and will have to be procured by the Company at each phase accordingly.

(f) The Company acknowledges the right of the Indigenous Community to grant or withhold its consent. The Company undertakes to accept the decision of the Indigenous Community while respecting and acknowledging their right over the Traditional Territories and their right to have continued representation and decision making authority in this respect.

(g) The Community Consent is subject to and valid as long as the Company is:

i. in compliance with the terms and conditions of this Agreement; ii. not engaged in any corrupt or illegal practices;

iii. ensures that the expectations of the Indigenous Community are fulfilled and Company continues to uphold and abide by its commitments undertaken following the consultative process with the Indigenous Community and as set out in this Agreement;

iv. not engaged in any detrimental practices, including those of business, environmental, social or technical nature.

(h) The Parties acknowledge and agree that this consent is without prejudice to any rights or remedies that may be available to the Indigenous Community. Nor does the aforesaid consent restrict the ability of the Indigenous Community to freely participate in any public regulatory forums or interfere with their right to join unions, engage in organizing of worker on project site or during a strike.

(i) The Parties acknowledge and agree that this Agreement does not provide the Indigenous Community’s consent to or authorize any other exploration, development or production of mineral resources by the Company in the Project Area or the Traditional Territories except as specifically provided for in this Agreement.


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4.4 PROCEDURE FOR OBTAINING COMMUNITY CONSENT (a) In order to procure the Community Consent and thereafter each time the Community Consent

is to be revised, revisited or renegotiated the Company will provide the Indigenous Community Participation Forum and Implementation Committee with a project proposal. Upon receipt of the project proposal, the Implementation Committee will review the proposal and communicate its finding to the Implementation Committee which will after consultation of all members make a recommendation (together with reasons therefor and all other related information) to the Indigenous Community Participation Forum. The Indigenous Community Participation Forum will have the final decision making power in this respect and may upon receipt of the recommendation by the Implementation Committee in accordance with (d) below either: i. accept the recommendation with or without modifications; or ii. reject the recommendation without assigning any reason thereof.

(b) The project proposal submitted by the Company will be complete, and include all information necessary included as listed in part (i)-(xi) below to allow the Implementation Committee and Indigenous Community Participation Forum to make an informed decision. No material facts about the Project or its impacts will be altered, misrepresented or concealed from the project proposal.

i. project description, including the purpose and need for the Project;

ii. anticipated eco-systemic and socio-economic impacts of the Project; iii. anticipated effects of the environment on the Project; iv. steps which the Company proposes to take including any contingency plans, to avoid

and mitigate adverse impacts; v. steps which the Company proposes to take to optimize benefits of the Project, with

specific consideration being given to expressed community and regional preferences as to benefits;

vi. steps which the Company proposes to take to compensate interests adversely affected by the Project;

vii. the monitoring program that the Company proposes to establish with respect to eco-systemic and socio-economic impacts;

viii. the interests in lands and waters which the Company has secured, or seeks to secure; ix. options for implementing the proposal; and x. any reports, studies, assessments carried out or prepared by the Company in respect of

the Project and its impacts for filing with any governmental authority or otherwise; xi. any other related information that is required to make an informed decision.


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(c) In reviewing the aforesaid project proposal the Implementation Committee will consider the following:

i. any adverse effects of the Project on the ecosystem, wildlife habitat or other activities

the Indigenous Community is engaged in at the Project Area; ii. any adverse socio-economic effects on the Indigenous Community;

iii. whether the project will cause significant public concern; or iv. whether the project involves technological innovations for which the effects are

unknown; v. whether the project would enhance and protect the existing and future well-being of

the Indigenous Community; vi. whether the proposal reflects and respects the priorities and values of the Indigenous

Community; vii. adequacy of steps which the Company proposes to take to avoid and mitigate adverse

impacts; viii. adequacy of steps the proponent proposes to take, or that should be taken, to

compensate interests adversely affected by the Project; ix. adequacy of monitoring program that the Company proposes to establish, or that

should be established, for ecosystemic and socio-economic impacts; and x. adequacy of steps which the Company proposes to take, or that should be taken, to

restore ecosystemic integrity following Project abandonment.

(d) The Indigenous Community Participation Forum and Implementation Committee following review of the proposal will in its recommendation to the Indigenous Community Participation Forum indicate in writing that:

i. the proposal may be accepted and recommend the Indigenous Community Participation Forum to consent to the same. The recommendation will include: (A) the committee’s assessment of the Project and its impacts; (B) any proposed terms and conditions to be included as part of the Community Consent; (C) identify particular issues or concerns which should be considered in such a review;

ii. the proposal is insufficiently developed to permit proper review, and should be returned to the Company for clarifications accompanied with requests for further information as may be necessary; or

iii. the potential adverse impacts of the proposal are so unacceptable that it should be modified or abandoned.


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ARTICLE 5 — DOCUMENTS TO BE SUBMITTED

5.1 PRIOR TO SIGNING

Prior to signing of this Agreement the Company will submit the following documents to the Implementation Committee and the Parties:

(a) Board resolution of the Company authorizing the signing of this Agreement; (b) A summary of the preliminary proposal for the mining concession; (c) Details of projects undertaken (including current project being undertaken) by the Company

(including controlling shareholders) and its affiliates across the world. This would include information regarding the access to technology and operation methods deployed for projects;434

(d) Details of the financial ability of the Company and its controlling shareholders and ability to raise funds to cover the project costs along with an undertaking to maintain the aforesaid financial ability for the duration of the Project;

(e) Details of any prior termination of mining concessions arising from a default by the applicant company or its controlling shareholders; and

(f) Details of the beneficial owners of the Company.

5.2 DURING TERM OF AGREEMENT

[]435

ARTICLE 6 —FORUM PROCESS AND REPRESENTATION

6.1 REQUIREMENT FOR FORUM PROCESS436

All indigenous communities residing in the Project Area will be represented in the indigenous community participation forum and will be involved in the consultation and decision making process for grant of Community Consent for a Project (“Indigenous Community Participation Forum”). The Indigenous Community Participation Forum will be organized for all beneficiaries in the Project, will determine and consider all issues relating to Project impacts and thereafter continue to represent the Indigenous Community in all matters relating to this Agreement. 434 Prior activities of a mining company in Peru should be a relevant consideration for the grant of mining concession and the communities consent. It should be known to the community and relevant government agencies whether the company has a poor record in respect of its other operations in Peru or otherwise and if the company caused considerable environmental harm or had negative relationships with communities. Moreover, due consideration should be given to whether a mining company has a pending issue in relation to its mining activities or has had its concessions terminated. All of this will ensure that the legacy of the company does not impede sustainable development of mining activities in Peru. 435 This section may be filled it as may be required in light of project specific requirements. 436 This consultation process has been developed independent of the legal consultation processes under the Consulta Previa and the Participacion Ciudadana for the reason that the aforesaid do not empower the Community with the final decision making power – under the Free Prior Informed Consent – envisaged under this Agreement – the Community is empowered to say no. It is at this stage beyond the ambit of this agreement to consider the circumstances in which the government may nevertheless proceed with the project where FPIC is not granted by the impacted communities.


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6.2 INDIGENOUS COMMUNITY REPRESENTATION

The representatives of the Indigenous Community party to this Agreement and represented on the Indigenous Community Participation Forum have been selected to be representative of all indigenous communities residing in the Project Area including any minority groups such as the youth and women. The process of selection is designed to ensure representation of all communities though one or more of the following means:

(a) social mapping and landowner identification studies in the Project Area undertaken by the Company [including participatory mapping and social, environmental, and culture and rights impact assessment];

(b) any indigenous communities identified by the MOC in the Project Area; (c) any indigenous community that accedes to this Agreement through the accession

procedure set out in Section 6.3 (Accession by Indigenous Persons to this Agreement).

Each of the indigenous communities residing in the Project Area will be represented in the Indigenous Community Participation Forum on basis of their percentage population.437

6.3 ACCESSION BY INDIGENOUS PERSONS TO THIS AGREEMENT

Any indigenous persons residing in the Project Area that are not represented in the Indigenous Community Participation Forum may upon application to the Indigenous Community Participation Forum accede to this Agreement and become a member of the Indigenous Community Participation Forum. The decision of whether or not to include the applicants will be made by the Indigenous Community Participation Forum provided, however, if the MOC declares the applicants as an indigenous community they will automatically be entitled accede to this Agreement.

ARTICLE 7 — IMPLEMENTATION AND INDIGENOUS COMMUNITY PARTICIPATION

COMMITTEE

7.1 APPOINTMENT OF THE IMPLEMENTATION COMMITTEE

There will be established pursuant to this Agreement an Implementation and Indigenous Community Participation Committee (“Implementation Committee”) to oversee implementation of this Agreement and advise the Indigenous Community Participation Forum on matters as may be required from time to time.

While the role of the Implementation Committee is extensive and includes all matters relating to

437 The issue of representation will be project specific and will be determined in light of consultation between relevant stakeholder parties. On that basis various models can be adopted for example either there can be equal representation of each indigenous community residing in the Project Area or representation can be in proportion to the population of each indigenous community in the Project Area.


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the implementation of this Agreement the ultimate decision-making will rest with the Indigenous Community Participation Forum.438 All matters before the Implementation Committee will be debated in session. At then end of each session the committee will pass a resolution by majority setting out its decision or advice that will (along with any dissenting views and statements) be communicated to the Indigenous Community Participation Forum. The final decision on any matter relating to this Agreement will rest with the Indigenous Community Participation Forum. The Indigenous Community Participation Forum upon receipt of the decision and advice will have the discretion to consult any member of the Implementation Committee, as it may deem necessary for arriving at its decision.

The representatives of the Company on the Implementation Committee will not have any voting powers and their role on the committee will be entirely advisory in nature. The Company representatives will be required to attend all sessions and participate in all matters and proceedings of the Implementation Committee without exercising any voting rights.439

7.2 COMPOSITION OF THE IMPLEMENTATION COMMITTEE

The Implementation Committee will comprise of the following:

(a) representatives of the Indigenous Community; (b) representatives of the Company; (c) Independent Indigenous Community Advisers; (d) representatives of MINEM; (e) representatives of the Ministry of Culture; (f) representatives of the Regional Government; and (g) representatives of the Local Government.

7.3 REVIEW SESSIONS OF THE IMPLEMENTATION COMMITTEE

The Implementation Committee will meet periodically during the Term of this Agreement or at such other times as may be requested by the Indigenous Community Participation Forum. Notwithstanding the above the Implementation Committee will hold bi-annual review sessions.

438 While it may be argued for the inclusion of a push/pull or balance between the discretion accorded to the Indigenous Community Participation Forum and the Implementation Committee – this Agreement allows for greater discretion to the Indigenous Community Participation Forum as having the final say on matters whereas the role of the Implementation Committee is more advisory. This structure is to account for lack of sophistication of the Community Representatives in contrast to the Company and protects the former from the coercion in decision-making by the former. 439 The proposed structure is to cater to various concerns: having the company as part of the Implementation Committee making recommendations to the community forum raises issues of conflict of interest – as often they Implementation Committee is advising on matters that may be of critical importance to the company. On the other hand the effectiveness of the consultation and approval process is diluted if there are multiple committees with different compositions issuing varied recommendations to the Community Participation Forum.


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7.4 REPLACEMENT OF MEMBERS OF THE IMPLEMENTATION COMMITTEE

To ensure reasonable continuity of the committee members each member of the Implementation Committee will have a term of five years. Each Party will be entitled to replace its representatives on a revolving basis thereby ensuring that at all times there is at least one representative on the committee who is fully informed and up to date with all matters of the Implementation Committee.

7.5 APPOINTMENT OF THE INDEPENDENT INDIGENOUS COMMUNITY ADVISERS

The Independent Indigenous Community Advisers will be appointed by and will report to the Indigenous Community, provided, however, all costs and expenses in this respect will be borne by the Company. In this respect the Company undertakes:

(a) not to coerce, intimidate or otherwise influence the advisers in any manner that may affect their role as Independent Indigenous Community Advisers to the Indigenous Community;

(b) to pay all sums invoiced by the Independent Indigenous Community Advisers in respect of the services rendered by them to the Indigenous Community without inquiring into the services rendered;

(c) refrain from any actions that may undermine the advisory engagement process of the Independent Indigenous Community Advisers.

The Company recognizes that it is integral to the engagement and procurement of the Community Consent that the Indigenous Community be able to make independent informed decisions and recognizes the importance of the services provided by the Independent Indigenous Community Advisers in this respect.

ARTICLE 8 —COMPANY REPRESENTATIVE

8.1 APPOINTMENT OF COMPANY REPRESENTATIVE

The Company will appoint and maintain with the consent of the Indigenous Community Participation Forum following the Effective Date, a representative (the Company’s Representative)440 that will serve as the Company's interface with the Indigenous Community with respect to all matters relating to the Project, including this Agreement. The Company will not replace Company’s Representative without the prior written consent of the Indigenous Community Participation Forum provided that prior to replacement of the outgoing Company’s Representative, the Parties will meet to address and mitigate any matters relating to the outgoing Company’s Representative activities in relation to the Project or this Agreement.

440 This representative may be part of the community engagement team generally deployed by the Company in the project area, nevertheless, the Company shall be required to have one representative dedicated and at all times available for the benefit of the Community.


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8.2 PURPOSE OF THE COMPANY REPRESENTATIVE (a) The Company’s Representative will be an experienced and capable person and a full time

employee of the Company and will be at all times available at the Project Area. (b) The Company’s Representative will be the Company's primary point of contact with the

Indigenous Community in relation to all matters concerning the Project and this Agreement. The Company will ensure that the Company's Representative is up-to-date with all matters relating to the Project and this Agreement.

(c) The Company will be fully and solely responsible to the Indigenous Community for any act, omission or error of the Company’s Representative as if they were an act, error or omission of the Company.

(d) The Company’s Representative will be fluent in the local language, written and verbal, for day-to-day communications with the Indigenous Community.

ARTICLE 9—TRAINING AND EDUCATION441

9.1 TRAINING AND EDUCATION PLAN

The Company will, following consultation with the Indigenous Community, develop and fund a training and education plan (“Training And Education Plan”). The Training and Education Plan may include:

(a) courses for non-indigenous and indigenous teachers and other instructors to enable them to conduct courses in indigenous culture, language and similar areas;

(b) training for elders from the Indigenous Community to enable them to participate in the delivery of indigenous culture and language instructional programs;

(c) scholarships and reimbursement of other expenses for juvenile and adults from the Indigenous Community to enable them to attend conventional educational institutions within and outside the Traditional Territory;

(d) vocational training and similar programs and facilities for youth and adults from the Indigenous Community within and outside the Traditional Territory.

9.2 IMPLEMENTATION OF TRAINING AND EDUCATION PLAN

The Company will take steps suited to the local customs and practices to inform and engage the Indigenous Community members in the education and training opportunities being offered. 441 In respect of employment, education and training this Agreement sets out a few basic provisions, however, the actual provisions will have to be tailored to the requirements and expectations of the indigenous community following the engagement and consultation process. The eventual objective is to uphold the rights of the community and to respect their individuality, culture and practices. Therefore only the consultation and engagement process will reveal the expectations of the indigenous community from the Company.


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ARTICLE 10—EMPLOYMENT

10.1 LABOR FORCE DEVELOPMENT PLAN

(a) The Company will as its hiring policy for the Project take all reasonable steps to employ the Indigenous Community Members throughout the range of available job classifications for which they are qualified and provide training and apprenticeship programs that will promote Indigenous Community members into these positions.

(b) The Company will devise a labor force development plan to provide training to members

of the Indigenous Community seeking employment thereby ensure that the demand for labour is matched by the requisite skilled labour (the “Labor Force Development Plan”).

The Company will along with its community liaison staff maintain and update an

employment directory, which will consist of a detailed inventory of Indigenous Community member’s skills and training for those members interested in employment at the Project.

The State shall provide necessary assistance in the development of the plan including, as

may be required, data on the current and future expected labour supply and demand. The plan thereafter will be revised annually to reflect any changes.

(c) The Labor Force Development Plan may include the following:

i. Job opportunities at the Project including measures to inform the people of the job

opportunities; ii. Pool of potential employees from the Indigenous Community and their skills;

iii. Barriers that must be removed to increase participation of the Indigenous Community;

iv. Training programs to be developed in connection with the Project including specific training initiatives designed for women;

v. Apprenticeship programs at the Project; vi. Costs of implementing the plan and funding for its implementation; and

vii. Develop targets or percentages for creation of job opportunities (including job opportunities for women) along with an alternate plan for spending of a requite payment compensation (to be utilized for training and education or alternate employment opportunities) if the Company unable to meet those targets from the Indigenous Community.

(d) The Company will preferentially hire a Indigenous Community member for employment at

the Project using the following process:


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i. the Company will provide advance notice of the hiring for positions to the

employment coordinator within the Company. In this respect the Company will take steps suited to the local customs and practices to inform and engage the Indigenous Community members in the offered employment opportunities. Such steps could include posting notice of jobs in locations that people will visit (e.g., marketplaces, health or government offices), or making radio announcements or advertising jobs in local newsletters or newspapers. The Company may also require its staff to visit communities, arrange job fairs or visit schools or homes of the people to inform them of employment opportunities;

ii. the employment coordinator will identify for the Company and encourage potential employees, including those listed in the employees directory, who are Indigenous Community members to apply as candidates to fill such positions; and

iii. the Company will evaluate the candidates and will offer employment to a Indigenous Community member in preference to an equally qualified non- Indigenous Community member applicant for the position.

10.2 LABOR FORCE RETENTION PLAN

The Company understands the challenges that may be faced by members of the Indigenous Community in undergoing a transitory process of undertaking employment at the Project. In this respect the Company will take measures to ease the transition and help the Indigenous Community members retain the employment opportunities. These measures may include the following:

i. more experienced workers or elders may be appointed to act as mentors for trainees and recruits;

ii. language measures to accommodate employees who lack a good knowledge of the working knowledge and prohibition on termination or disciplinary action due to an inability to speak a language;

iii. disciplinary measures for Company employees who discriminate against Indigenous Community members or exhibit discriminatory attitudes or behavior;

iv. cultural policies to meet specific needs of culture, customs or other indigenous practices, including cross cultural training to avoid discrimination;


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ARTICLE 11—ENVIRONMENTAL MATTERS442

11.1 COMPLIANCE

(a) The Company will comply with all environmental requirements in respect of the Project arising from all Applicable Laws, rules, regulations and conditions of any other permits, licences and approvals that may be required for the Project. The Company will keep the Indigenous Community informed of all safeguards, measures, protocols and systems in place to prevent, minimize, mitigate and protect the water, air and land of the impacted Project area from any adverse impacts. In the event of any breach or adverse impact the Company will promptly inform the Indigenous Community of the same and along with taking any emergency and remedial measures to minimize adverse impact will also assist the Indigenous Community to implement protective measures.

The Company Representative will register and take into account any complaint or report of any environmental impact raised by a member of the Indigenous Community. Thereafter, the Company will promptly take relevant measures to address the complaint or report to the satisfaction of the complainant who will be kept informed of handling of the complaint or report.

(b) The Company undertakes to protect the environment (both on and off the Project site) and to mitigate any impacts of the mining activities on the Project Area including any damage to the environment or nuisance to people and property.

(c) Any written commitments made to the Indigenous Community by the Company as part of the prior discussions provided for in this Agreement will be obligations of the Company in relation to this Agreement even if those commitments are not incorporated as conditions of the Project’s commitments, permits or approvals.

11.2 AMENDMENTS TO ENVIRONMENTAL APPROVALS

The Company will not apply for amendments to environmental commitments, permits or authorizations related to the Project, including any amendments to the environmental impact assessment, without prior discussion with the Indigenous Community Participation Forum.

442 The Company is required to comply with both its regulatory and contractual obligations. While this provision would have to be customized for the project the objective is to prevent the Company from engaging in any practices with detrimental environmental effects rather than expending efforts on mitigating impacts.


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ARTICLE 12—SOCIAL AND CULTURAL PROTECTION443

12.1 DUTY TO CONSULT

The Company will through its community liaison engage with the Indigenous Community to gain traditional knowledge of the Traditional Territories and the Project Area for consideration in Project planning, environmental monitoring or application to regulatory authorities. Thereafter the Company will give full and fair consideration to this information and ensure that all Project activities are planned so as not to disrespect, interfere or in any way damage any culturally sensitive areas or practices.

12.2 ARCHEOLOGICAL FINDS

All fossils, coins, articles of value or antiquity, and structures and other remains or things of geological or archaeological interest discovered in the Project Area or the Traditional Territories will (as between the parties) be the property of the Indigenous Community. The Company will take reasonable precautions to prevent its staff, labour or other persons from removing or damaging any such article or thing. The Company will, immediately upon discovery of such article or thing, notify the Indigenous Community Development Forum will issue instructions for dealing with it.

ARTICLE 13—MONITORING

13.1 MONITORING PLAN

(a) The Parties will following consultation set up a monitoring plan for the Project. The Independent Indigenous Community Advisers will be engaged in the monitoring plan on behalf of the Indigenous Community and will submit periodic review reports to the Indigenous Community Participation Forum. The purpose of the monitoring plan will be:

i. to determine whether and to what extent the land or resource use in question is carried out within the predetermined terms and conditions, including those set out in various governmental approvals, permissions, licenses, permits or concessions, the environmental impact assessment report, the Community Consent and in terms of this Agreement;

ii. to measure the relevant effects of the Project on the ecosystemic and socio-economic environments of the Project Area;

iii. to provide the information base necessary for enforcement of terms and conditions of

443 The relevant protections required to be in place will only be determined following the consultation process with the Indigenous Community. However, as stated earlier the eventual objective is to uphold the rights of the community and to respect their individuality, culture and practices. Therefore only the consultation and engagement process will reveal the expectations of the indigenous community from the Company.


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land or resource use approvals including those set out in various governmental approvals, permissions, licenses, permits or concessions, the environmental impact assessment report, the Community Consent and in terms of this Agreement; and

iv. to assess the accuracy of the predictions contained in the project impact statements, including the environmental impact assessment.

(b) Without limiting the generality of Section 13.1(a), the monitoring plan set up pursuant to that section may include the following requirements:

i. regulatory agencies and the Company submit reports and information in respect of Project operations and impacts, and the implementation of mitigative measures;

ii. periodic evaluation by the Independent Indigenous Community Advisers of monitoring programs for the Project;

iii. general monitoring by the Independent Indigenous Community Advisers including collection and analysing information on the long term state and health of the ecosystemic and socio-economic environment in the Project Area.

iv. the Independent Indigenous Community Advisers will compile a report on the adequacy of the monitoring program and on the ecosystemic and socio-economic impacts of the Project.

ARTICLE 14—PAYMENTS

14.1 PURPOSE OF PAYMENTS

The Parties acknowledge and agree that any payments under this Agreement by the Company are not charitable contributions or [as a means for the Company to carryout mining activities] instead the purpose of the payments is:

(a) to compensate the Indigenous Community for the impacts of mining on their Traditional Territories including any social, cultural or environmental impacts; and

(b) a return to the Indigenous Community for permitting mining activities in their Traditional Territories as the owners of the land.


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14.2 PAYMENTS BY COMPANY444

14.3 PAYMENTS BY GOVERNMENT445

ARTICLE 15—TERMINATION

15.1 TERMINATION EVENTS

The Indigenous Community may in the following circumstances withdraw the Community Consent and terminate this Agreement: (a) if the Company becomes bankrupt or insolvent, or has a receiving order against it, or

compounds with its creditors, or, being a corporation, a resolution is passed or order is made for its winding up (other than a voluntary liquidation for the purposes of amalgamation or reconstruction), or a receiver is appointed over any part of its undertaking or assets; or if the Company takes or suffers any other analogous action in consequence of debt;

(b) if the Company abandons the Project; (c) any breach or default by the Company of its obligations under this Agreement; (d) any statement, representation, or warranty by the Company in this Agreement proving to

have been incorrect;

444 Payments by the Company may take various forms including an annual sum, a royalty style payment tied to production, equity interest in project or a fund established for an agreed number of years. Eventually the mode of payment will be finalized taking into account the expectations of the people. Therefore, the company would have to engage with the indigenous community before determining the mode of payment, including any projects that the Company may fund. A successful model in this respect is that of Cerro Verde that constructed a portable water treatment plant to ensure that the city of Arequipa will have access to clean drinking water. It is noteworthy that Cerro Verde is reported to have widespread acceptance in the area. Therefore, this section of the agreement is extremely subjective and would have to be finalized in context of the discussion with the indigenous community and the company. A proposed model is the creation of a fund so that funds once earmarked for the Project are maintained. This ensures that any unutilized funds do not lapse and can be used for the benefit of the indigenous community. 445 Tax and royalty payments generated from the project and allocated to the regional government from the central government should be spent following a consultative process that engages the indigenous community. This would circumvent a criticism leveled towards regional governments spending money allocated on projects divorced from the immediate needs of the communities. If the money generated from mining is seen to be spent by the government on provision of public infrastructure following a community consultation process it would help alleviate the negative reputation that surrounds previous mining projects particularly in context of the related social conflicts. Part of obtaining a social license to operate is having the community onboard with the mining activities and perhaps the most effective way to dispel the negative image of the past is to have communities experience the benefits of mining in their traditional territories through effective spending of income generated from mining. Additionally as recommended in context of payments by the Company a fund should be created for the monies allocated to regional government so that funds once earmarked for the Project are maintained within the fund. This ensures that any unutilized funds do not lapse and can be used for the benefit of the indigenous community.


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(e) if the Company activities have any environmental impacts including contamination or diversion of the water sources;

(f) if the Company is or has in the past been engaged in any corrupt practices or involved in

giving or taking any bribe, finder’s fee or kickback; (g) if the Company assigns or transfers this Agreement or any right or interest therein in

violation of the provisions of Section 17.7 (Assignment). 15.2 CURE PERIOD Upon occurrence of a termination event listed in Section 15.1 (Termination Events) above the Indigenous Community Participation Forum will give the Company a notice to cure. If the Company does not cure the termination event then Indigenous Community Participation Forum will be entitled to terminate this Agreement. 15.3 CONSEQUENCES OF TERMINATION (a) Upon occurrence of a termination event listed in Section 15.1 (Termination Events) above the

Indigenous Community Participation Forum will give the Company a notice to cure. If the Company does not cure the termination event within the cure period then this Agreement will be terminated and the Community Consent will stand withdrawn.

(b) Upon termination of this Agreement:

i. all permissions, permits, licenses and concessions granted to the Company will be deemed cancelled;

ii. the Company will be required to pay cost of completion of any Project, plan, training,

workshops undertaken by the Company in accordance with the terms of this Agreement;

iii. any sums lying in a fund, foundation or trust established for the benefit of the

Indigenous Community in terms of this Agreement will be transferred to the Implementation Committee and that will determine how the sums should be disbursed or utilized;

iv. the Company will have a continuing obligation to protect the environment while it

decommissions its operations within the Project Area and the Traditional Territories;


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v. the Company will have a continuing obligation to clean up and fully mitigate against any environmental impacts of its activities within the Project Area and will compensate the Indigenous Community for all losses, direct or indirect, suffered as result of the aforesaid environmental impacts.446

(c) Notwithstanding anything to the contrary contained in this Agreement, the provisions of

Section 16 (Dispute Resolution) will survive the termination of this Agreement. Further, all such relevant provisions of this Agreement that are required for the enforcement of each Party’s obligations and for the settlement of liabilities, in each case, upon termination of this Agreement will survive the termination of this Agreement until such obligations have been performed and the liabilities settled. Further any other provisions expressly specified in this Agreement to survive termination will survive termination of this Agreement.

ARTICLE 16—DISPUTE RESOLUTION

16.1 GENERAL The Parties will attempt to settle every dispute arising out of or in connection with this Agreement or the Project (“Dispute”), by following the dispute resolution process set forth below in this Article 16. 16.2. MUTUAL DISCUSSIONS If any dispute or difference of any kind whatsoever (a "Dispute") arises between the Parties in connection with, or arising out of, this Agreement, the Parties within 30 days will attempt to settle such Dispute in the first instance by mutual discussions between Company and Indigenous Community. The State will act as a facilitator in these discussions to help reach a mutually acceptable solution while preserving the rights of both Parties. 16.3 MEDIATION (a) If the Dispute cannot be settled within 30 days by mutual discussions, then the Dispute will

be referred for mediation.

(b) The Parties to a dispute referred to mediation will attempt to choose a mediator within fifteen (15) days of the dispute being referred to mediation. The mediators will be proposed by the

446 The objective is to restore the area to its original state and free of any adverse environmental effects. The termination of this Agreement or the abandonment of mining activities by the Company does not absolve the Company of its contractual liability to do the aforesaid.


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Implementation Committee and will be subject to the approval of the Indigenous Community Development Forum.447

(c) If the Parties cannot agree on a mediator, the Indigenous Community Development Forum

will appoint a mediator.448 (d) A mediator agreed upon by the parties or appointed by the Indigenous Community

Development Forum will promptly meet with the Parties to assist them in the resolution of the dispute. The mediation will not extend beyond [seven (7) days] unless the Parties to the dispute and the mediator agree.

(e) The mediator, at his own option or at the request of Parties to the mediation, may provide a

brief non-binding written recommendation to the Parties. (f) The Company and the State will fund the costs of mediation.449

16.4 ARBITRATION (a) If the Dispute cannot be settled within 30 days by mediation, then the Dispute will be

referred for arbitration.

(g) The Parties to a dispute referred to arbitration will attempt to choose an arbitrator within fifteen (15) days of the dispute being referred to arbitration. The arbitrator will be proposed by the Implementation Committee and will be subject to the approval of the Indigenous Community Participation Forum.

(h) If the Parties cannot agree on an arbitrator, the Indigenous Community Participation Forum

will appoint an arbitrator. (i) The Arbitrator will expeditiously (and, if possible, within [insert number of days] days after

selection) hear and decide all matters concerning the dispute. Any arbitration hearing will be

447 The provision is tilted in benefit of the indigenous community. Nevertheless, the Company is represented in Implementation Committee and therefore has the opportunity to propose mediators or object to any mediators. To offset the capacity handicap generally faced by the Indigenous Community the final acceptance of the mediator is with the Indigenous Community Participation Forum to ensure that no unacceptable mediator is forcibly appointed. In any case both Parties have recourse to Arbitration if the outcome is unsatisfactory. 448 The provision is tilted in benefit of the indigenous community. Nevertheless, the Company is represented in Implementation Committee and therefore has the opportunity to propose mediators or object to any mediators. To offset the capacity handicap generally faced by the Indigenous Community the final acceptance of the mediator is with the Indigenous Community Participation Forum to ensure that no unacceptable mediator is forcibly appointed. In any case both Parties have recourse to Arbitration if the outcome is unsatisfactory. 449 The actual allocation of costs is subject to the understanding/negotiation of the parties. The objective is that the cost be borne by the Company or the government so as to ensure that cost does not hinder the indigenous community from pursuing any legal remedies that may be available to it.


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held in the [insert seat of arbitration]. The arbitration will be conducted in accordance with the rules established for the [insert applicable arbitration rules] to the extent that such Rules do not conflict with the terms of this Agreement. The decision of the Arbitrator (which will be rendered in writing) will be final, non-appealable and binding upon the parties and may be enforced in any court of competent jurisdiction.

(j) [The Parties waive, to the fullest extent permitted by law, any rights to appeal to, to seek

review of any award by, or to seek a determination of a preliminary point of law from, any court.]450

16.5 CONTINUED PERFORMANCE During the conduct of dispute resolution procedures pursuant to this Article 16, (a) the Parties will continue to perform their respective obligations under this Agreement, and (b) no Party will exercise any other remedies hereunder arising by virtue of the matters in dispute. ARTICLE 17—GENERAL PROVISIONS

17.1 ENFORCEABILITY

This Agreement is a legally binding contract and is subject to general laws of application of Peru as may be amended from time to time.

17.2 REVIEW

Every two years, for the duration of the Term of this Agreement, an independent reviewer will be engaged to review the implementation of this Agreement. The independent reviewer will be appointed in the same manner as the Independent Indigenous Community Advisers in terms of Section 7.5 (Appointment of the Independent Indigenous Community Advisers).

The observations of the independent reviewers will be reported to the Implementation Committee and the Indigenous Community Participation Forum. The report prepared by the independent reviewers will advise how its finding should be addressed and the Implementation Committee will consider these recommendation and make its recommendation to the Indigenous Community Participation Forum which will take the final decision.

17.3 LANGUAGE

450 There are pros and cons for including this provision. On one hand it protects the community from being dragged into protracted proceedings by company as a means of delaying the resolution process on the other hand it has the effect of waving its right to appeal the arbitral award.


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All correspondence, instructions, catalogues, brochures, pamphlets, documents and any other information given in relation to this Agreement or the Project will also be made available in the local languages of the Indigenous Community. 17.4 COUNTERPARTS This Agreement may be executed in any number of counterparts and by each of the Parties in separate counterparts, each of which when so executed will be deemed to be an original and all of which taken together will constitute one and the same Agreement. 17.5 GOVERNING LAW The laws of Peru will govern the validity and interpretation of this Agreement and the Parties hereto expressly agree to submit disputes arising hereunder to the exclusive jurisdiction of the courts of [Peru]. 17.6 AGREEMENT MODIFICATION No oral or written modification of this Agreement, either before or after its execution, will be of any force or effect unless such modification is in writing and signed by the Parties. 17.7 ASSIGNMENT Neither this Agreement nor any right, privilege or delegation hereunder may be assigned or transferred in whole or in part by the Company without the prior written consent of the Indigenous Community Participation Forum and any attempted assignment or transfer without such written consent will be void.


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SCHEDULES

SCHEDULE A – TRADITIONAL TERRITORY

SCHEDULE B – PROJECT AREA

SCHEDULE C – PROJECT SCOPE

SCHEDULE D – INDIGENOUS COMMUNITY CONSENT FORMS

We, _____________________ (together the “Indigenous Community”) hereby give our consent for the development of the Project on the Project Area subject to compliance with the terms and conditions of this consent form and the Community Participation and Consent Agreement executed between [] and dated []. The Company understands that this consent is valid only for the activities and matters in respect of which it has been sought and the consent will be renewed, revisited or renegotiated at any time there is any change or addition in the terms and conditions on which basis the Community Consent was previously granted. Furthermore, the Indigenous Community may withdraw its consent in terms of the Agreement including if the Company is found to engaged in any detrimental environmental or corrupt business practices or if the Company fails to fulfill any of its commitments made to the Indigenous Community on reliance of which the community gave its consent. 1. DESCRIPTION OF THE PROJECT PHASE OR ACTIVITY FOR WHICH THE COMMUNITY

CONSENT IS SOUGHT

2. TERMS AND CONDITIONS TO THE GRANT OF COMMUNITY CONSENT

3. VALIDITY OF CONSENT

4. ACKNOWLEDGMENT


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EXHIBIT 2 SOCIAL IMPACT ASSESSMENT The 2015 Report451 concluded that the EIA process do not place enough emphasis on identifying and addressing the social impacts of mining, and therefore advocated for de-linking the SIA from the EIA. This report expands on the idea of treating SIA as an independent impact assessment rather than a component of the EIA in the licensing process along with forwarding policy considerations for choosing this approach and the associated challenges. WHAT IS SOCIAL IMPACT ASSESSMENT? SIA is a field of applied social research and practice that developed originally in 1970’s.452 Social Impacts are commonly understood as “the consequences to human populations from any public or private actions that alter the ways in which people live, work, play, relate to one another, organize to meet their needs and generally cope as members of society.”453 Inter-organizational Committee on Guidelines and Principles for Social Impact (IGCP) defines SIA as the process of assessing or estimating, in advance, the social consequences that are likely to follow from specific policy actions or project developments.454 More specifically, SIA is focused on how to identify, avoid, mitigate and enhance outcomes for communities and is most effective as an iterative process across the life cycle of developments, rather than one-off activities at the outset of mining.455 SIA can serve as an integral part of the Social Licensing process, augmenting it, by identifying and mitigating the adverse and enhancing the positive impacts of the mining investments. –Social Impact Assessment and the Social License: The Logical Link– As mentioned earlier, Social License rests on the concept of free informed and prior consent (FPIC). The challenge of obtaining a FPIC from communities is characterized by the inherent inequity between the bargaining parties, and thus it is difficult to determine with certainty if both the parties are equally aware of the impacts of moving forward with mining activities.456 While, it is easier to assess and predict quantitative effects on the environment in terms of metrics such as water usage, waste disposal, etc., it is hard to make predictive qualitative assessment to determine the social impact of an investment. By definition, an EIA is particularly focused on

451 MINING IN PERU, MINING IN PERU (2015). 452 Susan A Joyce & Magnus Macfarlane, Social Impact Assessment in the Mining Industry: Current Situation and Future Directions, MINING, MINERALS AND SUSTAINABLE DEVELOPMENT (2001), http://pubs.iied.org/pdfs/g01023.pdf (last visited Apr 18, 2016). 453 Rabel J Burdge & Franck Vanclay, Social Impact Assessment: A Contribution to the State of Art Series, IMPACT ASSESSMENT (1996), http://www.hardystevenson.com/articles/social impact assessment a contribution to the state of the art series.pdf (last visited Apr 18, 2016). 454 ICGP 1995, cited by MacFarlane. 455 Franc Vanclay, International Principles for Social Impact Assessment , 21 5–11, 5-11 (2012), http://www.tandfonline.com/doi/abs/10.3152/147154603781766491. 456 Ana Maria Esteeves, Daniel Franks & Franc Vanclay, Social impact assessment: the state of the art, 30 IMPACT ASSESSMENT AND PROJECT APPRAISAL 34–42, 34-42, http://www.tandfonline.com/doi/abs/10.1080/14615517.2012.660356#ahr0cdovl3d3dy50yw5kzm9ubgluzs5jb20vzg9pl3bkzi8xmc4xmdgwlze0nje1nte3ljiwmtiunjywmzu2qebama== (last visited Apr 19, 2016). (There is a section in this report, evaluating consulta previa, the third subsection is called ‘Parity’- that is what I am referring to here.)


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environmental impacts and according to the existing laws in Peru, mining companies are not required457 to prepare a separate Social Impact Assessment (SIA).458 However, if properly managed, community engagement through SIA process can assist in fostering social acceptance of the proposed mining activities. When the social impacts of mining are explained in quantitatively measurable form459 there is an opportunity to ‘partner’ with the community on setting achievable goals designed to mitigate the adverse effects and enhance the positive effects of mining. Transparency and the availability of tangible information can strengthen the community’s informed consent by reducing the concerns around inadequate information in the decision making process. Transparency and access can strengthen the social license by building trust and paving the way for long-term sustainable mining. Therefore, regardless of the challenge, there is a need to emphasize on the social impact assessment as an independent requirement within the social licensing process. –Social Impact Assessment Tools– Mining can have an impact on almost every aspect of a community’s existence. Following figure outlines the four broader categories of change a community can experience as a result of mining.

Figure 21: Categories for common changes induced by mining (Franks, 2011)460

A comprehensive social impact assessment tool should be designed with an aim to measure the impact of mining in all social aspects of the community life. Thus, the SIA tool must benchmark existing state of affairs in each affected category through available social research tools, as well as predict beneficial and adverse impacts of mining on each of these categories through qualitative and quantitative techniques. Strategies on mitigating the adverse effects, and 457 MINING IN PERU, MINING IN PERU (2015), Pg. 108 458 Under the General Environmental Law, an EIA does incorporate certain social aspects:

• A description of proposed activity and the anticipated direct and indirect effects of such activity on the physical and social environment; and

Steps to ensure adequate social management, including to ensure transparency, conflict prevention and the prevention, mitigation and eventual compensation for social impacts. 459 We can use the measuring technique called ‘benchmarking’, which allows the researchers to define the impact in terms of measurable standards of achievement or goals to strive for. The technique allows the researchers to define, measure and set reference points, which are later used to measure net change. 460 D M Franks, Management of the Social Impacts of Mining, SME Mining Engineering Handbook, 23 SOCIETY FOR MINING, METALLURGY AND EXPLORATION.


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enhancing the positive effects of mining should be integrated within the social licensing process to ensure ongoing and iterative attending of these impacts. According to the ICGP461 guidelines, SIA process is described to have following stages:

Figure22: Stages of SIA (ICGP Guidelines)

While the act of carrying out a SIA independently from the EIA remains a relatively new concept462 it has improved significantly with several proven positive outcomes stemming from application of the aforementioned approach in mining activities.463 There are still key challenges associated in carrying out social impact assessments. In order for qualitative assessment to be accurate, it is vital to maintain the values of trust, transparency, inclusivity, respect and communication, that will encourage communities to share reliable information, which can benefit all stakeholders involved.464 Social impacts specific to mining are assessed by the criteria of order of causation and the measure of significance.465 The order of causation is essential to determine the direct, indirect, and induced impacts. The causality can determine the responsibility; therefore, if a social impact assessment indicates a negative causality, it can become the responsibility of the involved party to take steps to mitigate the negative impact of its actions. If the net social impact of mining is indeed positive, then the mining company can showcase to the community the benefits of allowing it to mine. A social impact assessment is important in that it covers the nuances that a quantitative assessment may miss. For instance, a quantitative based assessment may fail to account for a mountain or river’s sacred or religious significance to those indigenous communities living within the scope of mining operations that may affect said natural object. Only a qualitative assessment that assigns a high degree of significance to subjective perceptions of an indigenous communities’ social context will be able to identify and respect the customs, beliefs, and traditions of the indigenous communities. Therefore, a comprehensive SIA would incorporate an

461 Inter-organizational Committee on Guidelines and Principles for Social Impact Assessment (1994), The ICGP guidelines are considered to be the most comprehensive guidelines and are consistent with the EIA framework. 462 Although, SIA is a relatively new field, however, there are many different models of the SIA. To refer a few: Guide to Social Assessment (Brach et al. 1984) , Methods for Social Analysis in Developing Countries (Finsterbusch et al. 1990), Community Guide to SIA (Burdge 1984) and Environmental Assessment Sourcebook (World Bank 1991) . The most comprehensive publication of SIA procedures is the “Guidelines and Principles for Social Impact Assessment by the Inter-organizational Committee on Guidelines and Principles for Social Impact Assessment (ICGP) (1994)( Susan A Joyce & Magnus Macfarlane, Social Impact Assessment in the Mining Industry: Current Situation and Future Directions, MINING, MINERALS AND SUSTAINABLE DEVELOPMENT (2001), http://pubs.iied.org/pdfs/g01023.pdf (last visited Apr 18, 2016). ). 463 Refer to the Queensland example – also mentioned in the last year’s capstone 464 Conversations from community visit indicate that communities in the beginning would share information easily thinking that it would preserve their community. However, the extra information resulted in facilitating the licensing process, making communities feel betrayed and cheated, as their help led the companies to get the licenses even faster. This meant sharing information adversely affected the ability of communities to protect their environment. 465 Id. 12


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array of qualitative and quantitative tools that will help assess the causality and significance of the impact of mining actions on a particular community. SOCIAL IMPACT ASSESSEMENT IN THE CONTEXT OF PERU From a governance perspective, Peru’s ratification of ILO convention 169 and the enactment of laws such as ‘Constulta Previa’ and ‘Participacion Ciudadana’ indicate that Peru is committed to providing solutions for the long-term sustainable development of its natural resources. To ensure the sustainable development of mining regions, it is essential that a mining company’s engagement with local communities is based on a long-term approach. In the absence of comprehensive and transparent assessment of the anticipated social impacts of mining, the communities are forced to engage with incomplete understanding, which results in mutual distrust and social conflict. In order to successfully solicit social license from the affected communities, it is therefore essential to build trust. By including an SIA in the licensing process, Peru can work to strengthen the community engagement process and reduce social conflicts. –Challenges of the SIA Approach– One of the key difficulties associated with introducing SIA as a separate requirement for the licensing process stems from the resource constraints that prevent the government of Peru from adequately meeting the required processing needs.466 By nature, a qualitative process requires specific skill sets, resources, and a robust understanding of the methodology of implementation. Without the resources to carry out a comprehensive SIA, the government risks relying on mining companies to conduct the SIAs—a potential conflict of interest that could perpetuate community—company—government tensions. Assuming that the government uses the widely recognized “Guidelines and Principles for Social Impact Assessment” put forward by the Inter-organizational Committee on Guidelines and Principles for Social Impact Assessment (ICGP) (1994),467 Peru will nonetheless still need to conduct trainings that will build a cadre of professionals who can successfully conduct SIAs. A second challenge of the SIA approach relates to the fact that such assessments do not necessarily address the communities’ perceptions of a government biased towards mining companies. –Way forward– Despite the challenges in implementing an SIA, it is not an insurmountable task. However, the responsibility of getting it done needs to be allocated clearly. Since the government has resource constraints, it is advised that the SIA process should be undertaken by the Mining companies. It works in the Mining Companies’ interest as it reduces the costs of managing social conflict in the long run. 466 This can be substantiated by the fact that in our visit to the office of the Regional Manager of Energy and Mining Sector in the Government of Arequipa, we found out that eight people were responsible for reviewing 16,976 EIA applications. 467 Susan A Joyce & Magnus Macfarlane, Social Impact Assessment in the Mining Industry: Current Situation and Future Directions, MINING, MINERALS AND SUSTAINABLE DEVELOPMENT (2001), http://pubs.iied.org/pdfs/g01023.pdf (last visited Apr 18, 2016).


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The arrangement can be structured as such, that the Mining company would be responsible for a transparent and credible SIA process with the guidelines defined and provided by the government. The government will have to ensure to provide specific set of rules that guide mining companies in accurately and credibly conducting SIA process. The responsibility of final accuracy and authenticity of the SIA process would lie on mining company conducting it. Thus, if later process’s credibility is questioned, the mining company has the responsibility to defend its work.


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TEAM BIOGRAPHY Professor Jenik Radon, Esq. Jenik Radon is founder and director of the Eesti and Eurasian Public Service Fellowship, which has provided students from Columbia, Stanford, Tuck School of Business at Dartmouth and other institutions the opportunity to intern in emerging nations such as Cambodia, Ecuador, Estonia, Georgia, India, Kenya, Mozambique, Nepal, Philippines, and Uganda. Radon is a recipient of SIPA’s “Top Five” teaching award for his work during the spring 2010 semester; and his 2012 Capstone class won the Dr. Susan Aurelia Gitelson Award for Human Values in International Affairs for the report “Oil: Uganda’s Opportunity for Prosperity.” He was selected as a Fulbright Specialist (2012) at the Law School of Makerere University, Uganda in the field of extractive industry. Radon served as a lecturer at Stanford University, where he taught access to medicine, human rights, privatization and international investment management, and as a visiting professor at the Indira Gandhi Institute for Development Research in Mumbai, India, where he taught “Dynamics of Corruption.” Radon was the Ashton J. and Virginia Graham O’Donnell Visiting Professor/Educator at Whitman College. He regularly teaches at Monterrey Tech, Queretaro, Mexico, which named him Distinguished University Professor. Radon participated in the constitutional peace process in Nepal and served as a drafter of the interim peace constitution, which granted citizenship to millions of stateless people in the Terai region, among other things. He served on the UN Global Compact Academic Initiative taskforce which seeks to have business schools incorporate the Compact’s 10 human rights principles into their curriculum and teaching. He supports the Zawadi Africa Education Fund, Kenya, in bringing education to the next generation of Africa’s women leaders. In the early 1980s, Radon founded Radon and Ishizumi, an international law firm representing international corporations and foreign public entities. From 1999 to 2007, Radon was one of the executors/trustees of Vetter Pharma, a privately-held German pharmaceutical company, the world leader in the production of aseptic pre-filled injectable systems. In 1980, Radon co-founded the Afghanistan Relief Committee that sought freedom for Afghanistan and supported refugees displaced during the Afghan-Soviet war. Serving as an advisor during Estonia's independence struggle, Radon co-authored the country's foreign investment, mortgage/pledge, privatization and corporate laws and was an architect of Estonia’s privatization. In 1990, he was the first to officially raise the U.S. flag in Soviet-occupied Estonia since the 1940 Soviet invasion and was awarded the Medal of Distinction of the Estonian Chamber of Commerce. Radon served as Georgia’s key foreign advisor and negotiator of the multi-billion dollar and multi-nation oil and gas pipelines from Azerbaijan to Turkey (the BTC), featured in the James Bond movie, The World is Not Enough. In 2000, he was awarded Georgia's highest civilian


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award, the Order of Honor. Radon presently advises public authorities and civil society in number of developing and emerging nations around the world, including Cambodia, Ecuador, Kenya, Mozambique, Nepal, Philippines, and Uganda, particularly in respect of the negotiation of extractive industry agreements, especially oil and gas, and sustainable natural resource development, as well as Afghanistan, among other things, in respect of the prospective multi-nation TAPI gas pipeline from Turkmenistan to Afghanistan to Pakistan to India. Radon has lectured in almost 40 (and visited 100) nations, including Azerbaijan, Bhutan, Cambodia, China, Germany, India, Kazakhstan, Laos, Mexico, Mongolia, Mozambique, Nepal, Nigeria, South Sudan, Turkmenistan, Uganda, and UK. He has written numerous articles, including Resolving conflicts of interest in state-owned enterprises, International Social Science Journal (UNESCO); Staatsfonds vor den Toren (Sovereign Wealth Funds Before the [Trojan] Gates), Wirtschaft (Economy) section, Frankfurter Allgemeine Zeitung (FAZ); Getting Human Rights Right, Stanford Social Innovation Journal (December, 2007); How To Negotiate Your Oil Agreement, in Escaping the Resource Curse, ed. Macartan Humphreys, Jeffrey Sachs and Joseph Stiglitz (Columbia University Press, June 2007); Ethics in Business (MBA) Education - A New Must, International Management Development Research Yearbook, Technology, Structure, Environment, And Strategy Interfaces In A Changing Global Business Arena (June 2006); Sleepless, Clueless, Dangerous, in Ergo-Med (Haefer Verlag, Germany, March 2006); The New Mantra: Bribers Beware! The Journal for Transnational Management (Vol. 11, No. 4, 2006); Hear No Evil, Speak No Evil, See No Evil Spells Complicity, (UN) Compact Quarterly (Volume 2005, Issue 2), published by the (United Nations) Global Compact. Radon obtained his B.A. from Columbia University, a M.C.P. from the University of California, Berkeley and a J.D. from Stanford Law School. Peru Capstone Team Biographies (last names in alphabetical order) Jonathan Avila received his Degree in Political Science in the National University of Colombia and is a Master of Public Administration at the School of International and Public Affairs (SIPA) at Columbia University. Prior to SIPA, he worked for almost nine years in the Colombian public sector, first as a staffer in the Senate of the Republic and later as researcher in the Department of Planning. His studies concentrate on Energy and Environment, with particular interests on sustainability, extractive industries and business development. Yohan John Balan received his B.A. LL.B (Hons.) from NALSAR University of Law, India and is a Master of Laws at Columbia Law School, Columbia University. Prior to Columbia, he worked with the Anti-corruption and compliance team at one of India’s largest law firm for seven years. His prior experience includes working with the Ministry of Defense in India on the procurement procedures governing purchase of sophisticated defense equipment for the armed forces. At Columbia, Yohan’s research focuses on White Collar Crime, including anti-corruption and internal investigations. Ana De La Cruz received her B.A. from the School of Foreign Service at Georgetown University and is a Master of International Affairs candidate at the School of International and Public Affairs (SIPA) at Columbia University. Previously, she worked with the U.S. Department of State where she focused on rule of law, security, Middle East, and Southeast Europe policy


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issues. At SIPA, she studies International Security Policy and International Conflict Resolution. Ana’s interests center upon conflict prevention and post-conflict reconstruction, as well as good governance and human rights issues. Muhammad Affan Javed received his B.S. from Lahore University of Management Sciences, Pakistan, and is a Master in Public Administration at Columbia University’s School of International and Public Affairs (SIPA) at Columbia University. He is the recipient of Fulbright Scholarship and Maguire Fellowship. Affan’s studies’ focus on Urban and Social Policy and United Nations Studies. Previously, he worked for seven years in the fields of youth leadership, development, and education reforms. He is also the founding partner of educationdata.pk and peacefulpuppets.org. He helped set up an outgoing cultural exchange program for AIESEC in Pakistan and Oman, and assisted Tibetan government in exile streamline its entrepreneurship development communication strategy. Currently he serves in on the Board of Children Global Network Pakistan, and Supervisory Group of AIESEC Pakistan. Suzhe Jia received her LL.B. from Peking University, China, and is a Master of Laws at Columbia Law School, Columbia University. Prior to Columbia Law School, she worked for almost three years as an associate in the highly regarded capital market group at Grandall Law Firm in Beijing. At Columbia, Suzhe’s research focuses on energy and environmental law and policies, as well as corporate law. She also works in Columbia Center for Sustainable Investment as a research intern, focusing on legal frameworks in extractive industries in different countries. Mubarik Khan received her LL.B (Hons.) from the University of London and is a Master of Laws at Columbia Law School, Columbia University. Previously, she worked as an associate at one of the largest law firms in Pakistan for five years with a focus on corporate advisory and transactional law. She has been part of the legal team in a number of pioneering projects in Pakistan’s power sector handling regulatory matters and drafting of project documentation. She has also been involved in legislative drafting and recently worked on the Public-Private Partnership policy and rules for the government of the province of Punjab, Pakistan. Jenny Lee received her B.A. from Bryn Mawr College and is a Master of International Affairs at the School of International and Public Affairs (SIPA) at Columbia University. Prior to attending SIPA, she worked in the private sector for several years on financial investment and information technology. At SIPA, she studies Human Rights and Humanitarian Policies. Jenny’s interests focus on the practical application of human rights concepts and laws, and resolving operational issues related to their implementation. Joseph (J.T.) Maberry received his B.A. from Boston College in Philosophy and is a Master of International Affairs at the School of International and Public Affairs (SIPA) at Columbia University. Previously, he worked in Commercial Real Estate Finance and in the Land and Public Affairs Departments in upstream oil and gas. J.T. also spent two years in Community Development in Crimea, Ukraine as a United States Peace Corps Volunteer. J.T.’s interests focus on energy industry economics and finance and the Former Soviet Union. Abhinaya Natarajan received her Bachelors of Engineering in Biomedical Engineering from SSN College of Engineering, India, and is a Master of Public Administration at the School


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of International and Public Affairs (SIPA) at Columbia University. Prior to SIPA, she worked as a software engineer for almost two years, primarily coding web applications and databases for the Retail, CPG, Logistics and Life sciences unit in a multinational software firm in India. At SIPA, she specializes in Development Practice. Abhinaya’s interest focuses on rural economic development and governance in extractive industries. Vatsala Sahay received her B.A. LL.B (Hons.) from the National Law School of India University, Bangalore, India and is a Master of Laws at Columbia Law School, Columbia University. Previously, she worked as an Associate in the Corporate and Litigation teams of an Indian law firm. She also helped found another Indian law firm, which has been recently adjudged as one of India’s best new firms by the India Business Law Journal. Vatsala’s interests center upon dispute resolution and the intersection between law and society, particularly in the realm of corporate social responsibility. Naoko Takahashi received her B.A. from Sophia University, Japan and is a Master of International Affairs at the School of International Public Affairs (SIPA) at Columbia University. Prior to SIPA, she worked as an investor for natural resource projects for four years. Her investment specialized in oil, gas, and uranium projects in former Soviet Union countries, including Russia, Kazakhstan and Turkmenistan. At SIPA, she studies International Security Policy and Conflict Resolution. Naoko’s interests focus on natural resource related armed conflicts.