Legal compliance – An end goal or a continuous process?
The term "legal compliance" often means different things to different people. Often, "legal compliance" is regarded by those persons with the responsibility for compliance as an end goal to be achieved and, once achieved, to be "ticked off". In this approach, the focus is on getting as many compliance items that have been identified to the "ticked off" phase, and this process is often a paper exercise. The method most commonly used is the internal and external legal compliance audit process, where compliance aspects are reflected as being compliant or non-compliant (non-conformance).
While this process is useful in providing a company with a snapshot of the status of compliance at a particular point, it does not, generally, give an accurate reflection regarding whether or not the company is substantially compliant, which is more often than not the primary focus of the enforcement agencies such as the Department of Mineral Resources (DMR), the Department of Environmental Affairs (DEA), Department of Water Affairs (DWA) and other regulatory bodies tasked with the job of enforcing the applicable laws. In addition, legal compliance should not be regarded as an end goal, but rather as a dynamic process that requires constant attention, input and commitment of both human and financial resources.
In this article we discuss the complex legal compliance requirements and obligations that are applicable to the mining and natural resources industries, based on our interpretation and application of the applicable laws, but more importantly, based on our regular interaction with the regulatory authorities and taking their views in relation to enforcement and legal compliance into account. We focus on health, safety, environmental and compliance with one of the key pillars of the Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA), namely compliance with the provisions of the Mining Charter and the Social and Labour Plan.
The Mine Health and Safety Act 29 of 1996 (MHSA), which regulates health and safety in the mining industry, is a complex piece of legislation with a strong emphasis on consequences for non-compliance, including the notorious "stop notices" in terms of section 54 of the MHSA, which have significant consequences for mining companies and other stakeholders, the imposition of administrative fines on the mining companies for non-compliance in terms of section 55B of the MHSA of up to one million rand per contravention, and prosecution of the mining company and individuals involved for non-compliance with the provisions of the MHSA. Proposed amendments to the MHSA include proposals to significantly increase the responsibility (and potential liability) of the chief executive officer, the maximum administrative fines that can be imposed, in the fines that can be levied, for criminal prosecution. As a result, if for any reason a mining company is not dedicated and committed to compliance because it is a good corporate citizen, there are more than sufficient incentives to ensure compliance as a result of the potential negative consequences, which include the payment of fines, criminal prosecution and, of course, potential reputational harm. The Mine Health and Safety Inspectorate of the DMR is focused on initiating the process of administrative fines and criminal prosecution, where appropriate, and it is likely that this emphasis will increase, exposing chief executive officers, general managers, managers and engineers to potential prosecution for contraventions of the MHSA.
With regard to environmental laws, a complex range of laws apply to the mining industry, most notably the MPRDA with its required environmental authorisations, the provisions of the National Water Act, and the so called "listed activities" under the National Environmental Management Act (NEMA). The compliance environment from an environmental perspective is complex, for a range of reasons, including that there are so many laws that must be considered and complied with, the involvement of a number of regulators, that is there is no "one stop shop", and the continual amendments to the applicable environmental laws, which create significant uncertainty. For example, the amendments to NEMA and the MPRDA have created an uncertain environment regarding applications for environmental authorisations, both in respect of historical and current applications, where certain of the mechanisms have not yet been provided for, creating gaps in the law.
One thing is, however, certain, and that is that the regulatory authorities, particularly the DEA and the DWA, are stepping up their attempts to enforce the applicable laws, and where necessary, to seek the prosecution of the directors, officers, and, in certain instances, the advisors to the mining companies for alleged contraventions. The best example is the often high profile enforcement by way of prosecution of companies that have commenced with environmental activities that are "listed" in terms of NEMA without the necessary authorisations, and where the mining companies have applied for rectification in terms of section 24G of NEMA. The application for rectification has as its basis an acknowledgement of guilt, that is the applicant has commenced and/or continued with an environmental activity that required authorisation without the actual authorisation. The process involves applying for rectification and the calculation of an administrative fine to be paid by the applicant before the DEA considers the application and processes the application. Historically, the DEA has not generally pursued a criminal prosecution based on the acknowledgement of guilt, that is the application, and has been satisfied with the payment of the administrative fine. The DEA has come under significant criticism by various stakeholders for the so called "slap on the wrist" administrative fines, which is prompting the DEA to carefully consider the amount of the administrative fine being imposed (the maximum is one million rand per contravention). The DEA often consolidates the activities for the purposes of calculating the administrative fine and imposes a consolidated administrative fine in respect of the application, rather than a fine for each contravention that is addressed in the application, and this is the subject of criticism by range of activists. In addition, there is an increase in the number of criminal prosecutions arising out of the applications for rectification. The charge sheets that are prepared often include six to nine charges relating to the contraventions of NEMA in relation to the listed activities, and contravention of the water laws.
As with health and safety, there is a strong incentive, namely the "big stick", which can be used to enforce compliance.
Currently, the DMR has placed emphasis on compliance by mining companies with their Social and Labour Plan (SLP) and the Mining Charter. In order to measure compliance, Regulation 45 of the MPRDA Regulations requires the holder of a mining right to submit an annual report to the relevant regional manager detailing the extent of the holder's compliance with the SLP and the Mining Charter. If the holder fails to comply with the requirements of the SLP and the Mining Charter, a notice in terms of section 93 of the MPRDA may be served upon the holder requiring the holder to take immediate rectifying steps within a certain period of time, or a notice to suspend the operations may be issued, or the mining right can be cancelled in accordance with the provisions of section 47 of the MPRDA. Due to the substantial impact that these actions may have on the operations of mining companies, mining companies should structure themselves in such a way so that there is a clear responsibility for the implementation of, and reporting on, the SLP and the Mining Charter.
While compliance can be achieved by accepting that it is a dynamic, living process, through proactive means by companies, it is sadly often the case that compliance is achieved as a result of enforcement by the regulatory authorities. This mind set needs to change, with greater emphasis on a proactive approach, which acknowledges that compliance is a significant component of the operations, and through the commitment to the allocation of proper and adequate human and other resources.