Ernst & Young’s Africa Attractiveness survey has predicted that the value of foreign investment in Africa is likely to be US$150 billion by 2015.
While the returns on investment in Africa are the highest in the world, so are the risks. Here Ian Hargreaves, a partner at Addleshaw Goddard, discusses how companies can avoid them.
One of the major risks for international companies is corruption. Our solicitors have made several trips in 2011/2012 to Nigeria and Ghana – on one occasion at the behest of UKTI and the British High Commission – to advise businesses operating in Nigeria and Ghana on the effect of the UK Bribery Act (the "Act") which came into force in July 2011.
However, it is our experience in discussing these issues with businesses in Nigeria (and Ghana) they accept if they want to dine at the top table and be seen to be part of the BRINCS revolution they will need to observe the rules set out in legislation such as the Foreign Corrupt Practices Act and the Bribery Act even if they do not necessarily always play by the rules.
In implementing the Act, it gave the UK some of the toughest anti-bribery legislation in the world. Of particular relevance to multinational companies is the corporate offence for failing to prevent bribery.
Essentially, any commercial organisation which "carries on a business or part of a business in the UK" could be held criminally liable for failing to prevent bribery by persons "associated" with it (for example, an employee, agent or subsidiary), even if the bribery takes place outside the UK and involves non-UK persons.
The extra-territorial effect of the Act has therefore brought UK business activity in Africa and vice versa very much in focus. Notwithstanding this, the Act does not make it impossible to do business in Africa as some have suggested – far from it. Compliance with the Act can be seen as commercially beneficial.
While the term "adequate procedures" is not defined in the Act, the Ministry of Justice’s guidance sets out six principles for bribery prevention. These are:
· Proportionate Procedures- the procedures an organisation should implement must be proportionate to the risks it faces considering its size, and the nature and complexity of its business.
Top Level Commitment– senior level management of a commercial organisation should be committed to preventing bribery and are required to ensure that the organisation’s staff and those who do business with or for the organisation understand that bribery (including facilitation or draft payments) is never acceptable.
Risk Assessment– this requires organisations to assess the nature and extent of their exposure to external and internal risks of bribery. This assessment needs to be periodic, informed and documented.
Due Diligence– organisations should adopt due diligence policies with respect to (i) location, (ii) specific business opportunities, and (iii) specific business relationships, including the organisation’s supply chain, agents and intermediaries and all forms of joint venture relationships.
Communication (including training) - commercial organisations must seek to ensure that their bribery prevention policies and procedures are embedded and understood throughout the organisation through internal and external communication, including training.
Monitoring and Review- organisations should institute monitoring and review mechanisms to ensure compliance with relevant policies and procedures. Organisations should react to changes in circumstances and implement improvements where appropriate.
Strict compliance policies
With Africa becoming increasingly attractive to investors, companies within the continent are now seen by international companies as prime targets for acquisitions, mergers and joint ventures.
Where a buyer acquires shares in a target, such risks include: a decrease in the value of the target; reputational damage; loss of public sector contracts; remedial costs in remedying the corrupt practices; and discovering connected offences such as fraud, tax evasion and money laundering.
To mitigate these corruption risks, buyers are insisting on: lengthy compliance due diligence; changes to the structure of the deal to allow for remedial work to be undertaken; strict warranties and indemnities; price reductions; or even walking away from a deal.
It is not, however, only the UK which has enforced strict anti-corruption laws. There is robust anti-corruption legislation in many African countries.
Nigeria has recently demonstrated its increased appetite for anti-corruption compliance in the annual report from the Central Bank of Nigeria which specifies that a "zero-tolerance to corruption policy" should be entrenched.
Proclamations mean nothing without action however and only time will tell if the Central Bank will take action against corrupt financial institutions and businesses.