The fight against bribery and corruption has come under increasing regulatory focus in recent years. Implementation of anti-bribery and corruption (ABC) laws worldwide, a rise in enforcement actions and increased international co-operation between anti-corruption agencies all signal greater scrutiny.
To date, the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act (UKBA) feature among the legislations with the strictest requirements and widest jurisdiction. Both acts allow for the prosecution of firms and individuals for their actions anywhere in the world, as long as there's a US or UK nexus. They also impose corporate criminal liability for acts carried out by associated parties acting on behalf of a company.
Sapin II, the French anti-corruption law, imposes similar requirements, alongside an additional influence-peddling offence. It also mandates the implementation of adequate procedures for certain companies headquartered in France. While not mandatory under UK or US legislation, the implementation of adequate procedures can serve as a defence against corporate liability under s.7(2) of the UKBA, or could be seen as a mitigating factor in FCPA investigations.
Africa's fast-growing population and economy in recent decades have presented new business opportunities. Exploring new ventures on the one hand and heightened regulatory obligations on the other may sound challenging. With the right compliance strategy, this could lead to significant rewards.
The Serious Fraud Office (SFO) remains the lead UK agency for investigating large and complex bribery and corruption cases. Since introducing deferred prosecution agreements (DPAs) in 2014 for firms willing to co-operate, the SFO has entered into 12 DPAs. Most of these involved international firms settling allegations of engaging in, or failing to prevent, corrupt practices while conducting business in various emerging markets.
When looking closer at Standard Bank Plc (2015), Rolls-Royce Plc (2017), Airbus SE (2020) and Amec Foster Wheeler (2021) – other than the fact that some or all the reported corrupt activities took place in African countries – there are three striking commonalities.
1 The companies were charged with at least one count of failure to prevent bribery under s.7 of the UKBA (among other offences in some cases)
2 Some of the alleged corrupt activities were committed by local intermediaries, who in a few cases were politically exposed persons (or their close relatives or associates)
3 Defence materials provided under s.7(2) of the UKBA were ruled inefficient to show that the companies had implemented adequate procedures to prevent persons associated with their business from committing a bribery offence
In summary, the control failings in these cases were:
Standard Bank Plc, Rolls-Royce Plc, Airbus SE and Amec Foster Wheeler were able to avoid prosecution by collaborating with authorities and entering into DPAs. But allegations of engaging in or failing to prevent bribery still came at a huge cost, in addition to the reputational impact. We’ve outlined these costs here:
Sources: Approved judgment: Sfo V Standard bank (judiciary.uk); DPA: Deferred Prosecution Agreement (1).pdf
Sources: Approved judgment: Serious Fraud office -v- Rolls Royce (judiciary.uk); DPA: DPA – Rolls Royce – 170117 (3).pdf
Sources: Approved judgment: R v Airbus Approved Judgment.pdf; DPA: Deferred Prosecution Agreement Airbus 31.01.20.pdf
Sources: Approved judgment: Amec Foster Wheeler Energy Limited – Deferred Prosecution Agreement Judgment – Serious Fraud Office – Serious Fraud Office (sfo.gov.uk); DPA: DPA Final (1).pdf
With the threat of corporate criminal liability for non-compliance, firms looking to conduct business in Africa should therefore ask themselves one question:
‘If the regulator knocked on my door tomorrow, would I be able to demonstrate that I have effectively implemented adequate procedures?’
Operating in emerging markets may come with additional regulatory risks and challenges but these risks can be managed through the implementation of proactive compliance measures.
The UKBA guidance sets out six principles for the design and implementation of adequate procedures to prevent, identify and manage bribery and corruption risks. These principles are similar to those found in the FCPA Resource Guide, Sapin II AFA Guidelines and other international guidance, including ISO 37001 anti-bribery management systems.
To avoid corporate liability under s.7 of the UKBA, firms must be able to demonstrate that they had effectively implemented the following procedures at the time the alleged offence occurred:
We’ve outlined the key challenges and success factors that your firm may wish to consider when implementing ABC risk assessment and third-party due diligence controls.
If you operate in or are looking to expand operations in an African jurisdiction, it’s crucial to conduct a full enterprise-wide ABC risk assessment to understand your exposure to bribery and corruption risks, and implement adequate mitigating controls. Many firms find themselves in regulatory turmoil because they failed to fully appreciate the bribery and corruption risks inherent to the environment in which they operate, or to their activities, business associates, business model, sector or products.
While your ABC risk assessment should be proportionate to the size and nature of your business, there are three critical factors you should consider: geographic, business partnership and sector risks. These are in addition to customer, product/service/transactional, business opportunity and delivery channel risks, which are key factors that should also be reflected in your assessment.
Bribery and corruption happens worldwide and is certainly not an Africa-centric issue. Each of the 54 countries in the African continent has its own intricacies, socio-economic and political realities, and different levels of governance. Both the Transparency International Corruption Perception Index (TI CPI Index) and the Trace Bribery Risk Matrix provide a good baseline to understand perceived corruption risks in the jurisdictions you operate, or wish to operate, in. But it's essential to keep in mind that each country bears its own specific sets of risks – and you should factor these nuances into your risk assessment.
Regardless of jurisdiction, entering into business relationships with third parties brings with it bribery and corruption risks. As illustrated in the case studies above, some particular high risk scenarios include:
These risks could potentially be more prevalent and perhaps harder to manage if you operate or are planning to operate in certain African jurisdictions. Depending on the specific countries you are targeting, your geographic risk assessment may flag weaker regulatory frameworks or enforcement, more opaque governance, or challenges in using or developing infrastructure needed to carry your business. All these circumstances can heighten bribery and corruption risks.
Entering into or maintaining a third-party relationship in a jurisdiction with higher bribery and corruption risks should therefore be treated as a red flag. You should review those relationships, assess whether they fall within your firm’s risk appetite and apply enhanced levels of due diligence.
Certain sectors may carry higher bribery risks than others, for example:
The oil and gas, telecommunication, construction, extractive, transportation and finance industries are commonly known for carrying higher bribery and corruption risk.
Understanding the vulnerabilities of the sector in which you operate is therefore crucial for the implementation of adequate controls.
Corruption and a lack of transparency is also not unique to Africa. And yet for investors entering the continent and wishing to understand its business landscape, backgrounds and political influence of third parties, there are a number of challenges.
One factor is the availability and reliability of publicly available information. Records in some jurisdictions may not be well maintained or readily accessible. They may be on paper, requiring manual retrieval, with information that is out of date, incomplete or simply ‘missing’. Access is often not quick or straightforward: it's not unheard of for records to be withheld based on who the shareholder is, for example.
Secondly, the local media landscape is mixed. On one hand, bloggers and civil society increasingly call corrupt politicians to account but, on the other, the traditional press can, in some jurisdictions, be unreliable, thereby providing little insight for the provider.
A third factor to consider is the local business environment, which often features business elites and dominant families with far-reaching links and political influence. While understanding and navigating the potential political exposure of third parties can be onerous, it remains a critical exercise.
So where does this leave provider? And where does this leave the provider trying to conduct due diligence in Africa? While these challenges are real, armed with patience, forethought and the right resources providers can work around these factors to deliver meaningful intelligence.
Investors should consider using providers with a proven track record in the region who understand and adhere to anti-corruption practices. A suitable provider should speak the local language, have an extensive network as well as detailed understanding of the political dynamics. That on-the-ground intelligence from a well networked business community can provide essential context and background, often in far greater detail than you would find in the public domain.
With an investment in time and a refocus of where the information comes from, firms can mitigate these challenges and access hugely detailed insight.
To discuss this topic further, contact Sophie Lamont and Jocelyne Landu Gombo.
