Ethics

During 2010, we finalised our new Code of Conduct, which grew from and elaborates upon our Business Principles. Training will take place across all our commodity businesses to familiarise all employees with the Code of Conduct in 2011. The Code is designed to serve as guidance for all employees, contractors and business partners regarding ethical behaviour – putting our Business Principles into practice.

The Code of Conduct document describes in detail Xstrata’s policies on a number of topics including:

• Gifts and hospitality;
• Payments to public officials;
• Specific areas or situations which may present the risk of bribery and fraud occurring, as ascertained by regular evaluation and assessment, by reference to the countries in which Xstrata operates, its business operations and business practices; and
• Dealing with specific business issues in a transparent and ethical manner.

The Code of Conduct also explains the procedures for approval, recording and accounting of payments, gifts and hospitality, as well as the sanctions and penalties that may apply to individuals and/or to Xstrata in the event of breaches of the rules, including disciplinary sanctions that may be imposed.

Bribery and corruption

We do not tolerate any incident of bribery or fraud committed by Xstrata employees, contractors, suppliers, joint venture partners and other business partners, either from within or outside the Group, and will take consistent and swift action (including dismissal and legal action) against those persons committing bribery or fraud, irrespective of length of service or position. All operations are required to closely monitor this issue and to have systems in place to prevent occurrence, and where this fails, to deal with the situation.

As an integral part of our internal control function and risk management framework, our Internal Audit teams regularly test the adequacy of the processes and procedures that our operations have in place to prevent bribery and corruption and review the risk identification process on a quarterly basis. Attention is focused on known high-risk locations, as well as functions such as procurement and interactions with government and regulators. Assessments take into account the level of risk in the country or region, the policies and practices of other companies operating in the region and the integrity and transparency of government, suppliers, contractors and other business partners. We do not allow any form of political contributions.

Transparency

Our Business Principles confirm our commitment to the maximum transparency that is commercially possible. We publicly report our financial, operational and SD performance regularly and in accordance with all relevant legislation and leading practice standards.

Xstrata supports the Extractive Industries Transparency Initiative (EITI) to increase transparency regarding company payments and government revenues in the extractives sector. Peru is the only EITI candidate country in which Xstrata operated in 2010. The Peruvian government has approved the EITI Action Plan but has not yet implemented it.

We report royalties and taxes paid to governments on a country-by-country basis.

Free enterprise

We are committed to free enterprise in the mining sector. To support this and to ensure that our people abide by this principle, Xstrata provides a web-based training programme to all relevant employees every two years around the topics of competition and fair trade. All participants must achieve a score in excess of 70%. The programme covers all major anti-trust and competition issues and uses simulated situations and questions to test employees’ understanding of competition law and appropriate behaviour when dealing with customers, competitors, trade associations, suppliers and distributors.

No issues related to anti-competitive behaviour arose in any of our operations during 2010.

Non-compliance

In 2010, sites terminated a number of individuals for non-compliance with the requirements of Xstrata’s SD Framework (see graph below). Possible breaches of Xstrata’s Business Principles are investigated by Group Internal Audit and in 2010 these investigations resulted in four terminations: two for theft and fraudulent actions; one for a human rights violation; and one for bribery and corruption.

Ethics Line

Each Xstrata employee and contractor is responsible for acting in accordance with our Business Principles. The Xstrata Ethics Line is a confidential whistleblowing facility operated independently by KPMG. The line exists for employees, contractors, suppliers, customers or business partners to report any breaches of Xstrata’s Business Principles, policies or prevailing legislation in confidence.

A freephone number is provided for every country in which the Group has managed operations and calls are reported on an anonymous basis to the Global Head Internal Audit and Risk, who reports directly to the Audit Committee. Ethics Line details are published on the back page of our Statement of Business Principles and are communicated throughout the Group.

In 2010, 44 incidents were reported through the Ethics Line. All reported incidents are fully investigated by our Group Internal Audit department. The number of incidents reported has increased by 30% since 2009, with the bribery and corruption and unfair labour practices categories increasing the most. There were no reported instances of abuse of company assets in 2010.