Guatemalan Mining: Corruption Risks
Team Leader: Kavisha Patel
Analyst: Kyla Yang
The President and Corruption
Guatemala has a dismal score of 28/100 on the Transparency International’s perceived public- sector corruption evaluation, with 0 being highly corrupt and 100 being transparent[1]. The deeply embedded nature of political corruption in the country, based especially on illegal campaign financing from organized crime and powerful business interests in return for contracts, kickbacks, and immunity from the rule of law, has led to observers labeling the country a ‘corporate mafia state’[2]. The current President, Jimmy Morales, won on a platform of anti-corruption but is now himself embroiled in a corruption scandal as he is accused of illegal campaign funding. As a result, he is targeting the International Commission Against Impunity in Guatemala (CICIG), an international body established by the UN tasked with combatting clandestine criminal networks, which, since the end of armed conflict in Guatemala in the 1990s, has weaved their way throughout Guatemalan politics. Despite being initially pro-CICIG, his stance changed quickly when he himself became a target of their investigations. His order to remove its Commissioner Iván Velásquez from the country and his subsequent disobedience of a Constitutional Court’s order decision to allow Velásquez back into the country as well as the decision to not renew the CICIG’s mandate in September 2018, has been seen as politically motivated attempts to undermine the body threatening his personal power.
United States’ Response
The response of the United States, potentially a game-changer given that they are the most powerful ally to Guatemala, to Morales’ attacks on the UN-sanctioned CICIG has actually been tenuously supportive, or at the very least, indifferent. This is especially surprising given that CICIG, previous to the Trump Administration, has received firm support from both Democrat and Republican presidents[3]. Senator Marco Rubio withheld $6 million in American support for CICIG based on unsubstantiated claims of Russian interference[4]. The US’s support is highly consequential given that they provide 40% of CICIG’s funding[5]. As well, the US refused to join 12 other CICIG donor countries in issuing a statement of support for CICIG[6]. But overall, given that the Trump Administration has not outright condemned the attacks on CICIG, it seems that Morales has successfully evaded one of the biggest possible obstacles to his political survival. In other words, nothing is likely to change. If anything, Morales will only feel emboldened by the Trump Administration’s inaction.
Risks and Mitigation
The mining approvals process is particularly vulnerable not only because of the lucrative nature of mining and the high stakes involved, but also because it is a multi-step process involving many different bureaucratic actors. Here, each step is an opportunity for a corrupt official to extort a company seeking a license or permit. Therefore, there exist multiple points at which a mining proposal might be delayed indefinitely or even vetoed. Indeed, this has happened in the past as mining interests complained in 2015 regarding a backlog of one hundred licensing applications pending review by the Ministry of Energy and Mines which has effectively become an illegal de facto moratorium[7]. However, this is not a risk unique to Guatemala, but is inherent to any process whose completion is contingent upon passing through the hands of many different actors with various motivations.
The acute nature of corruption affecting the Presidential office may be beneficial for mining companies. Operating may be easier to the extent that the regime is pre-occupied with its self-preservation amidst corruption scandals and not the enforcement of environmental and human rights law – which are already poorly enforced. It is our recommendation that mining companies seeking to operate in Guatemala play the defense. The country is corrupt, both in breadth and depth, so it would surely be in vain for companies to expend resources to try to change this. Companies should, instead, take anticipatory measures and work around the corruption.
When necessary, political contributions to advance business goals are relatively low risk. In fact, given the competitive environment of Guatemalan mining, making political contributions with public sector actors could mitigate risk over the long term.
A more passive form of risk mitigation would be to leverage the collective power of foreign mining companies in Guatemala. Given that industry constitutes 23.6% of their economy[8], it is too large of a sector to ignore, let alone cross. A mining company seeking to operate in Guatemala should initiate an alliance with other mining companies or join a pre-existing one. Solidarity, and making this intention clear, means that the government will be hesitant to target any given mining company if an attack on one is an attack on all. [9]
[1] "Guatemala," Transparency International, https://www.transparency.org/country/GTM.
[2] Nina Lakhani, "Corrupt Guatemalan Officials Find Help From an Unlikely Source: Marco Rubio," The Guardian, May 17, 2018, https://www.theguardian.com/world/2018/may/17/guatemala-marco-rubio-corruption.
[3] Francisco Goldman, "Why Is Trump Tacitly Supporting Corruption in Guatemala?," The New York Times, September 21, 2018, https://www.nytimes.com/2018/09/21/opinion/trump-corruption-guatemala.html.
[4] Lakhani, "Corrupt Guatemalan".
[5] Goldman, "Why Is Trump".
[6] Goldman, "Why Is Trump".
[7] "Guatemala: Obstacles to Mining Investment," Central America Data, last modified February 23, 2015, https://www.centralamericadata.com/en/article/home/Guatemala_Obstacles_to_Mining_Investment.
[8] "GDP - COMPOSITION, by SECTOR of ORIGIN." In The World Factbook. https://www.cia.gov/library/
publications/the-world-factbook/fields/2012.html.
