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Managing Regulatory Capture in Mine Safety Inspection

regulatory capture in mining
The potential capture of regulators in the mining industry is a real issue.

Regulatory capture is real. The Australian Banking Royal Commission has highlighted blatant failure by regulators to prevent illegal activities on behalf of many Government institutions that are designed to protect aspects of our society. Regulators were compromised…and failed in their duties to protect the citizens that they serve.

While the scope of inquiries has been limited to the banking sector, some are suggesting that some mining safety regulators may be also compromised in their duties of protecting the well-being of mineworkers and the broader public.

Could the regulator shortcomings identified in the Royal Commission also occur in the mining industry? Do we have a transparent and ethical system for the management of mining safety across Australia and are Regulator’s captured by the organisation’s they regulate?

What is Regulatory Capture?

In The Theory of Economic Regulation[1] Stigler wrote that “as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit … We propose the general hypothesis: every industry or occupation that has enough political power to utilise the state will seek to control entry. In addition, the regulatory policy will often be so fashioned as to retard the rate of growth of new firms.”

Following on from the work of Stigler two basic types of regulatory capture were identified.

The first is materialist (financial) capture, in which the captured regulator’s motive is based on its material self-interest, and can result from bribery, revolving-door recruitment, political donations or the regulator’s desire to maintain its government funding. These forms of capture often amount to political corruption.

The second is non-materialist (or cultural) capture, in which the regulator begins to think like the regulated industry. This can result from interest-group lobbying by the industry.

Ultimately, regulatory capture is a form of government mismanagement which occurs when a regulatory agency, created to act in the public interest, instead advances the commercial or political concerns of special interest groups that dominate an industry or sector it is charged with regulating.

When regulatory capture occurs, the interests of companies, unions or political groups are prioritised over the interests of the broader public, leading to a net loss for the society that the regulator protects. Government agencies suffering regulatory capture are called “captured agencies”.

Regulatory capture typically goes undetected in Government organisations until a crisis or multiple crises occur. Is at this point society, is alerted to mismanagement, incompetence or regulatory capture that has resulted in the failure…sort of like Queensland’s Black Lung debacle.

We know that all regulatory agencies, through the very nature of their work are exposed to ‘regulatory capture’ and accordingly must walk a fine line between the role of regulator and advisor.

What about mine safety inspection? Could it be impacted?

The need for transparency and accountability in regulatory activities has been recently demonstrated by the Queensland Government Black Lung debacle. The subsequent inquiry exposed chronic failures of the Queensland Government’s Department of Natural Resources, Mines & Energy to adequately manage multiple aspects of coal workers pneumoconiosis (CWP).

The parliamentary committee into black lung disease in Queensland found “catastrophic failings” in public administration in Queensland.

The Black Lung, White Lies report contains 68 recommendations as well as several findings into the re-identification of CWP.

The inquiry identified that in Queensland, the state’s ‘light touch regulatory model’ allows for close relationships between the Mines Inspectorate and the companies whose activities are being regulated – a situation that ‘has the potential to be fertile ground for regulatory capture’, particularly giving the influence of the mining industry in Queensland[2]

While the committee did not receive enough evidence to make a firm judgement on this matter, it expressed caution about that proximity and lack of oversight of these relationships, and apparent insufficient consideration of the matter from DNRM[3]

In 2016, Senator Doug Cameron used the Senate Select inquiry hearing to suggest Queensland’s Natural Resources and Mines Department had been “captured” by Queensland’s mining industry.

Senator Cameron asked a significant question to James Purtill from the Qld Department of Natural Resources Mines & Energy “There is a suggestion to me that your department has been captured by the mining industry. What steps have been taken to avoid ‘regulatory capture’?” he asked Mr Purtill.

Mr Purtill stated at the time that the state government had appointed Monash University Professor Malcom Sim “at arms length” from the department to run an independent inquiry into coal dust.

Purtill’s statement was limited to the issues of coal dust and was a somewhat narrow attempt to avoid an answer the broader question by Senator Cameron. The answer was clear…No real steps had been taken to assess regulatory capture!

Impact of Industry Self-Regulation

For several years in Australia, State Governments have largely adopted an ‘advise and persuade’ approach to mining industry safety recognising that  the costs and time to run a prosecution or drawn out legal action may be difficulty for many inspectorates who struggle with limited resources and funds to undertake their roles.

Gunningham said back in early 1987 in his commentary on the influence of inspectors in Baryulgil Asbestos mine debacle “An extreme “advise and persuade” approach enabled the inspectorate to avoid conflict with a powerful regulated industry, thereby preempting the political backlash that such a conflict would have entailed.

It avoided exposing the imbalance of information and expertise between the regulators and the regulated. It avoided disturbing the comfortable relationship which existed between industry and the inspectorate as a result of an ideology and structural conditions classically associated with regulatory capture.

Moreover, such an approach enabled the inspectorate to avoid facing difficult and controversial moral choices, hard decisions between balancing equity and efficiency, balancing lives against profits.”

We know that with a limited range of resources and technical information within some Government departments, departments often rely on stakeholders to provide industry relevant technical information and input into regulatory processes.

The ‘capture’ risks are obvious and stakeholders who wield power and relationships in committees, can subtly manipulate departmental directions and ultimately decision-making capabilities at a regulatory level. At times these interests can sway Government departmental actions and regulatory processes…even in mining safety.

Generally speaking, the closer that Government Departmental Regulatory employees interact with organisations or individuals within organisations, the greater the risk of compromised future regulatory action.

A 2008 review into the Queensland Mines Inspectorate by the Queensland Ombudsman concluded… ‘previous investigations I have conducted, as well as academic studies of regulatory capture, indicate strongly that the perception of regulatory capture can, in itself, significantly detract from a regulator’s effectiveness, including by prejudicing its reputation.[4]

A fine line to walk

The limited range of highly qualified personnel in mining industry safety, presents a range of issues for State Governments across Australia. Of course, Governments’ want people with industry experience and qualifications to perform regulatory roles, but they don’t need the baggage from an individual’s personal work networks that may compromise the ultimate integrity of the role or the role of the Department.

It’s clearly difficult to attract and retain applicants to lower paying mining safety regulatory roles, essentially because the Government role often comes with salary equivalent to 50% of a site-based salary.

For several years now there have been revolving doors that exist between some of Australia’s largest mining companies and staff in mining safety regulatory roles. Some mine site personnel often desire the role of inspector for a range of personal reasons, but often find that life is easier back on site with less frustration from Governmental bureaucracies together with significant remuneration.

Given the increasing complexities with mining industry regulatory activities, there may be opportunities for improvement in the model that is used in Australia to cultivate the next generation of mining safety regulatory functions.

Career development and progressions in a regulatory environment must considered an alternate to the existing model in order to minimise revolving doors and create a strong governance base that it free from regulatory capture.

What is good regulation?

Mining safety regulatory activities, irrespective of the jurisdiction or activity should promote transparency to the utmost and build trust with the broader community and the organisations that they regulate. They should be transparent enough for the weakest person in society to learn from, and/or to gain and understanding.

Principles of good regulation insist that any regulation be transparent, accountable, proportionate, consistent and targeted.[5]

The OECD describes transparency as one of the central pillars of effective regulation, supporting accountability, sustaining confidence in the legal environment, making regulations more secure and accessible, less influenced by special interests, and therefore more open to competition, trade and investment.

It involves a range of actions including standardised procedures for making and changing regulations, consultation with stakeholders, effective communication and publication of regulations and plain language drafting, codification, controls on administrative discretion, and effective appeals processes.[6]

Translated to a mining safety context, access to and availability to public information including mine safety inspection reports, incident reports and accident reports ensure that regulators maintain accountability and transparency. By providing public access, confidence is built in public institutions providing regulatory functions.

Are Australian Mining Safety Regulators captured?

Some say yes… but it’s a very generalist statement to make. A former Queensland Mines Inspector told AMSJ “We are all captured at one point in time. It’s a difficult role when you know the person or organisation you’re pursuing for an offence could well be your employer in a few years time. There’s only a handful of career regulators you know”

Regulatory capture is clearly not binary, but exists on a spectrum, ranging from weak to strong. It is known to occur at many levels within Government organisations and can occur at individual or even at state regulatory team level sometimes without the captured, realising that they have been captured.

Irrespective of the extent of capture whether it be weak or strong, it fails to change the fact that capture must be addressed lest it permeates mine safety regulation like metastatic cancer.

Mining safety regulators should be constantly on guard against letting themselves become overly influenced by the firms they regulate.  

Understanding the extent and nature of capture in any given case will become important for devising solutions for the Department to take to resist the pull of corporate power.

Unfortunately, within most Governments, there are currently no independent metrics to determine capture rates of mines inspectors or government officials.  The practice of identifying regulatory capture is typically reactionary and specific to isolated cases (as in the case of Queensland’s Black Lung’ enquiry).

A former inspector told AMSJ that it is a concerning trend when “there’s nobody checking the objectivity of the checkers because you simply don’t have the resources. Mines inspection isn’t all black and white.. there are personalities involved…there’s also a range of Government preference involved.”

State anti-corruption organisations are generally reactive to reported incidents involving maladministration or overt corruption. Given that mine safety inspection is a murky technical area, unless there’s sufficient evidence (normally of hardline corrupt practices)  presented to a corruption agency, it would be unlikely to dabble in a sometimes murky technical area of mining safety.

 Mining safety regulators across Australia employ highly qualified industry personnel typically with a range of experience and qualification in the management of mines. Many of these personnel swing between industry and Government and oft come to the Government table as regulators with a range of pre-conditioned approaches to regulatory activities.

In the regulator’s current model, the challenge remains for the regulators to remove those conditions and behaviours from the new employee.

To take off an inspectors BHP, FMG, Rio or Peabody hat and place on the new hat of the regulator can prove challenging given the current recruitment practices.

The USA Mine Safety & Health Association (MSHA) have implemented a system whereby people are career pathed in regulatory roles from graduation eliminating bias and periodic capture by the industry but there are critics of this model in that the regulator lacks significant working knowledge of mining practice.

How close do we want our regulators and the companies they regulate to be?

That can depend on which stakeholder group you come from. For those that represent mining companies, the process of self-regulation is potentially preferred. For those who represent mineworkers, it is inevitable that self-regulatory practices are not in worker’s best interests.

For many years in Australia, regulators have typically applied a ‘light touch’ philosophy when it comes to mining safety, but the winds of change often come with new political masters.

Let’s see what the May election holds. A change of Government may prove a change of regulatory mining safety regulatory practice in Australia. The key question is ‘Who will capture the regulators of the future and do we need to reform our current HR practice in regulatory agencies to ensure that we have mine safety regulators who have safety as part of their core DNA?

Have you any ‘hard evidence’ to support mining safety regulator capture?

AMSJ have received a range of statements from individuals regarding regulatory capture practices. At this stage, many of these statements are currently under investigation however, we can reveal two cases that have alerted transparency organisations.

Missing explosives

We note a recent case (2018) involving Victorian government’s mining explosives safety inspectors where they failed to deal with a “potentially catastrophic” load of explosives at the gold mine near Omeo in Victoria. The matter was investigated by the State’s Mining Warden who was highly critical of Government inspectors failing to take action.

Warden Neill Campbell found “No logical or reasonable explanation has been provided as to why this [the abandoned explosives] was allowed to occur in the current public safety environment.”

Information provided to AMSJ indicated that the State’s mines inspectors were reluctant to intervene in matter because of the strength of political links to figures involved. Independently, the findings of the State Mining Warden in the matter were damning on regulators.

In one of the Mining Warden’s findings he said “It is a serious concern that a large amount of explosives were abandoned, although locked in magazines underground, and left unsupervised for so long. No logical or reasonable explanation has been provided as to why this was allowed to occur in the current public safety environment”

“An added factor in this matter is that Hercules (a Victorian company) has made allegations about non-fit and proper persons, including persons with alleged criminal history or links, being involved with the previous mining licence holder and/or the previous operators on the site.

“Although it is accepted that the abandonment of a large amount of explosives in a mine would be a relatively uncommon event and that the possibility of those explosives being discovered and used in inappropriate ways would be small, the consequences of such an event would be potentially catastrophic.”

Mine on Fire

In September 2018, it has been reported that a former employee of Peabody North Goonyella mine (now working as a Mines Inspector) was allegedly providing direction and information to the mine prior during an incident that resulted in the North Goonyella mine being closed due to an underground fire in its’ coal seam.

An inspector allegedly previously worked at the mine (prior to conducting inspections on behalf of Queensland Government) may have potentially failed to declare conflicts of interest in inspection practices.

The incident has reportedly resulted in significant losses (tens of millions of dollars) of coal revenues for the State of Queensland and is currently under investigation by an Inspectorate appointed Investigating Officer. Despite occurring in September 2018, and a range of industry and Union Officials knowing the direct cause of the incident, the Queensland Government have not concluded their investigation into the matter.

The premise remains ‘if a bargaining and negotiation approach’ by an Inspector who was a former member of the mining company being regulated was the right look. The public perception of capture can be equally as damning as actual capture.

Regulatory Capture may also extend to tenements

Despite previous warnings from Transparency International, regarding issues of previous practices in mining tenement assessments, it appears the Queensland Department of Natural Resources, Mines & Energy have not ‘got the message’ when it comes to averting potential regulatory capture opportunities.

Transparency International singled out the Department in their report[7] when it said ‘In the mining states of Western Australia and Queensland have limited mechanisms for due diligence investigations into the backgrounds of mining companies and their principals.

While applicants are required to disclose their record of environmental compliance as part of the ESIA process, this disclosure is limited to their activities in Australia. Similarly, when considering whether to grant “foreign investor approval”, the Foreign Investment Review Board refers only to the investor’s compliance with Australian laws.

There are several examples in Australia of both foreign and Australian companies that have been granted licences even though they have been investigated or charged with corruption or other criminal offences overseas.

The report goes on to say ‘The beneficial ownership of mining companies operating in Australia is also unknown. The current framework inhibits the Australian government’s ability to expose and disrupt illicit financial benefits from tax evasion, money laundering or bribery flowing into or through the companies operating in Australia.’

Are we aware of our unawareness?

The question then remains, should companies who have a demonstrated record of corrupt practices or have been responsible for significant disaster/mining safety events in Australia or overseas be permitted to conduct their business here unless an objective ‘uncaptured’ watchful regulator ensures compliance?

Are our regulatory agencies here to specifically negotiate compliance or negotiate non-compliance?

Are we all turning a blind eye and hoping that our regulators aren’t captured by the glossy brochures, conference sponsorships, free lunches, the future opportunities and hopes that the company might bring personally.

These are very real issues are faced by our inspectors on a day to day basis and one that Government’s across Australia must face.

While regulatory capture may not totally be inevitable there are many current challenges to preventing the capture of mining safety regulators that should be faced head on. Those challenges include adequate resources for Government inspectorates to identify and prevent capture, the absence of adequate capture metrics and even training for measurement and assessment of capture metrics.

Confronting minings safety regulatory capture is not an insurmountable task but one that should be considered thoughtfully.  Industry influence over mining safety inspectorate decisions should not come at the expense of mining safety policy goals.

The implementation of sound frameworks to measure capture in mining safety would clearly be better than capture manifesting itself in another Senate inquiry.

READ RELATED CONTENT

References

[1] Stigler, George J. “The Theory of Economic Regulation.” The Bell Journal of Economics and Management Science, vol. 2, no. 1, 1971, pp. 3–21. JSTOR, www.jstor.org/stable/3003160.

[2] Senate Select Committee on Health, Fifth interim report, p 47.

[3] Senate Select Committee on Health, Fifth interim report, p 47.

[4] Report of the Queensland Ombudsman, The Regulation of Mine Safety in Queensland: A review of the Queensland Mines Inspectorate, Queensland Ombudsman, June 2008, p 93.

[5] Regulator’s Code, Department for Business Innovation and Skills UK https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/300126/14-705-regulators-code.pdf , Accessed 29/1/2019

[6] OECD Draft report, Regulatory Policy and the road to sustainable growth https://www.oecd.org/regreform/policyconference/46270065.pdf Accessed 29/1/2019

[7] Transparency International: Combatting corruption in mining approvals: assessing the risks in 18 resource-rich countries, Lisa Caripis https://transparency.org.au/tia/wp-content/uploads/2017/11/M4SD_CombattingCorruption.pdf Accessed 30/1/2019

 

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