The fight against bribery and corruption in Africa
17 May 2016
The changing ABC landscape in Africa
Governments across the globe have publicly expressed their commitment to anti-bribery and corruption activity (ABC) and ABC enforcement is on the rise. In particular, Government attitudes to bribery and corruption within Africa are hardening. African leaders are taking overt public stances on the issue as evidenced by the recent participation of Nigerian President Muhammadu Buhari at the international Anti-Corruption Summit held in London on 12 May 2016.
Recently, there has been a renewed focus on tackling bribery and corruption by governments across Africa. Public sentiment and political pressure have seen states channelling their energies into tackling Africa's long-standing problem with bribery and corruption through legislative improvement and enforcement action. Large corporations are also expecting a strong compliance culture as a condition of doing business with suppliers and service providers.
President Buhari of Nigeria, President Alpha Condé of Guinea and President John Magufuli of Tanzania were all democratically elected to Presidency in the last five years on anti-corruption tickets and have taken a hard line stance against corruption. Shortly after President Condé's election in Guinea, he launched an investigation into all mining licences, vowing to cancel those obtained through corrupt practises. A number of current US Department of Justice enquiries also relate to allegations of corruption in the extractive industries. Mining companies wishing to invest in mineral rich Guinea must now sign up to an ‘extractive industries transparency initiative’. President Magufuli demonstrated his commitment to ridding Tanzania of corruption with a series of high profile firings and arrests in his first few months of office.
Investors should take note. Dramatic gestures aside, African states are enshrining their anti-corruption attitudes in law. President Buhari's new Money Laundering (Prevention and Prohibition) Bill 2016 recently passed through its second reading in the Nigerian House of Representatives. The Bill will expand the scope of money laundering offences and place more onerous due diligence and reporting obligations on businesses and regulators alike. The proposed law has been described as a bold step by the government to eliminate corruption in Nigeria.
In North Africa, Tunisia adopted a new constitution in January 2014 which established the Good Governance and Anti-Corruption Agency, tasked with the detection of corruption. Likewise, Morocco has taken steps to constitutionalise its own anti-corruption body.
Generally, enforcement action tends to lag behind legislative modernisation. However, there is no doubt that there will be an increase in enforcement actions by anti-corruption agencies in Africa in the near future. Investments made today may come to be scrutinised in five years or ten years’ time and such actions will be judged by tomorrow's standards and expectations.
Implications for investors in Africa
In addition to ensuring compliance with relevant bribery and corruption laws that have extra-territorial reach such as the US Foreign Corrupt Practices Act and UK Bribery Act, international investors in Africa must adapt to the changing enforcement climate if they are to survive and thrive. Multinational investors will find it even more difficult to insulate corruption issues within local corporate structures.
A recent study published by Hogan Lovell’s’ investigations, white-collar and fraud team, Steering the Course: Navigating Bribery and Corruption Risk, found that 28% of 604 of the world's largest multinationals fail to tailor their global anti-bribery programs to local markets, with 59% reporting a culture of “profits over prevention”. These failures leave such businesses open to the risk of significant fines, criminal prosecution and personal liability when forging ahead into new markets. Corporates are feeling the pinch of regulatory enforcement globally, with two thirds of chief compliance officers agreeing that regulatory pressure is increasing.
So what can investors do to mitigate these risks?
Be proactive about the risk
Investors cannot afford to wait until corruption incidents arise to implement compliance procedures and risk mitigation. It is crucial to understand the risks associated with the assets or companies being purchased or the structural risks associated with the proposed new business. Anti-corruption prosecutors will expect to see a detailed risk assessment before considering a company's defence to corruption allegations. In addition to that risk assessment, it is crucial to ensure that the value of an investment is maintained.
Compliance policies and procedures can then be built around the risks which have been identified. The policies and procedures must then be proactively embedded and implemented. It will need to be abundantly clear that anti-bribery and corruption is in the company’s DNA.
Know who you are dealing with
Under most anti-corruption regimes, corporates can be liable for the actions of their business partners and other connected parties. Thorough due diligence on business partners is therefore essential. In an African context it can be very difficult to get ready access to reliable information on the corporate structure and ownership of proposed business partners. Information that is standard and publicly available in relation to European and US corporates is a luxury in many African countries. It can therefore be difficult to ensure that the chosen business partner is not politically exposed or otherwise has a corrupt history and investors must be prepared to go the extra mile.
Many investors use human intelligence resources, however, such information can be unreliable and may present conflicting reports. Likewise, local media reports must be viewed with scrutiny as they may not be free from influence or the source material on which they are based may be unreliable. There is no alternative to engaging on an interactive basis with your proposed business partner – with the assistance of legal advisers if necessary – to understand its attitude to corruption.
Although corruption risk varies across different African jurisdictions, such risk is generally very high across the continent, as shown by Transparency International's Corruption Perceptions Index. The expectation is therefore that thorough and wide-ranging due diligence is done before entering into any transaction.
Ignore the local regimes at your peril
African prosecuting agencies have teeth. A number of government agencies in countries across Africa have recently imposed significant and high profile (and in some cases, record breaking) fines on businesses for falling foul of local regulations. Although ABC enforcement agencies are participating in significant capacity building initiatives, their resources are limited compared to their US and European counterparts. However, this is an area which is getting increasing political focus and where high-profile enforcement results are expected. African regulators are increasingly sharing information with each other and agencies outside Africa to coordinate enforcement efforts.
What is clear is that, as the battle against corruption continues, businesses looking to invest in Africa cannot afford to be lax about their anti-bribery and corruption practices or their dealings with local prosecutors.